With the paycheck protection program ending on May 31, 2021, a number of small business owners have asked and considered other US Small Business Administration (SBA) loan programs, and it Perhaps now is a good time to remember why SBA loans are so appealing to small business owners, how they reduce lender risk, and why it is beneficial to a loan seeker.
Generally speaking, SBA guaranteed loans are attractive to small business owners because they have longer terms and lower down payment requirements than conventional loan products. Additionally, SBA guaranteed loans have capped interest rates and no lump sum payments. Loans are made through a private lender and then guaranteed by the SBA. This guarantee reduces the risk of the lender, allowing them to approve borrowers when they might not have been able to extend credit otherwise.
Small for-profit businesses are eligible for an SBA-guaranteed loan. Each loan scenario is based on its own merits and the lender’s criteria for granting credit. As with any conventional loan product, participating SBA lenders assess the borrower’s ability to repay the loan. Credit score is a key indicator of a borrower’s credit history. A low score would be a weakness while a high score would be a strength. It’s important to keep in mind that you have the flexibility to “shop around” for lenders and find the loan terms that best benefit your business. Similarly, even if one lender declines the loan, another lender could approve it. The SBA works with a large network of lenders, so business owners have many options, including large traditional banks, regional banks, and small community lenders. Your local SBA district office can provide you with a list of participating lenders in your area. You can also use the SBA’s online lender matching tool to connect with SBA-approved community development financial institutions (CDFIs) and small lenders across the country at www.sba.gov/lendermatch. Many business owners find it helpful to meet with a business advisor from one of the SBA’s business advisory resource partner organizations as they research their financing options. You can find a business advisor near you by using our locator tool at www.sba.gov/local. These partner advisors can help the business owner with all aspects of applying for financing, from identifying lenders, preparing a strong loan file, or even establishing or repairing credit. if that is a problem. As partners, these advisors offer their services at little or no cost and are a great resource for any business owner looking to start or grow their business.
The application process is handled by the participating lender from start to finish. The exact documents and forms required are determined by the lender. Typically, most lenders will ask you for your business plan, tax returns, and financial statements (or financial projections for a new business). Advisors from our SBA Small Business Consulting Partners, SCORE Association, Small Business Development Center or Women’s Business Center can help prepare these documents and the loan package. These services are free.
A question often asked by a potential borrower is “how long does the SBA loan application process take” or “what is the average wait time for applicants to receive funding after approval?” The simple answer is that it depends on the authority the bank has with the SBA and whether it is processing a loan using its delegated authority. If they use the delegated authority, they usually receive approval from the SBA instantly. While there is no guaranteed time frame, borrowers typically report completing the entire process from two weeks to one month. Faster processing time usually occurs when a lender is an SBA Preferred Lender and that is why there is an advantage in working with them. When a lender has preferred lender status, the lender has the authority granted by the SBA to make final credit decisions on loans guaranteed by the SBA. Non-preferred lenders must submit loans directly to the SBA for approval, which can lengthen the process and potentially pose a timing issue.
Borrowers also often want to know the most common reason why an SBA loan application is rejected. Often times, this is due to insufficient or incomplete application information or character issues, such as a criminal record or bankruptcy. It is important to remember that even with the SBA guarantee, the lender may require the borrower to provide a down payment or additional collateral because the SBA guarantee does not eliminate the risk, it simply reduces it. The exact terms of what is required are based on the overall risk of the transaction. Always remember that personal guarantees also apply and the borrower has an obligation to repay.
To learn more about how SBA loans can benefit your small business, join us for our monthly SBA Arizona Virtual Loan Clinic, offered on Wednesday, August 4th.e at 9 a.m. We will discuss financing options, general loan requirements, and tips for preparing a successful loan application. No registration necessary. Webinar login information can be found at www.sba.gov/az
In addition to our website, please follow us on Twitter @sba_arizona and check out our resource guide at www.sba.gov/document/support-arizona-district-resource-guide for more information.
Robert J. Blaney has been the District Director of the US Small Business Administration for the State of Arizona since 1998. His experience includes positions as a federal agent, police officer, vice president of a law enforcement company. insurance brokerage and district manager for the deceased congressman. Jack Kemp.
About the United States Small Business Administration
The Small Business Administration of the United States is making the American dream of becoming a business owner a reality. As the only resource and voice for small businesses backed by the strength of the federal government, the SBA gives entrepreneurs and small business owners the resources and support they need to start, grow or grow their businesses, or grow their businesses. recover from a declared situation. disaster. It provides services through an extensive network of SBA field offices and partnerships with public and private organizations. To learn more, visit www.sba.gov.