Building a business requires access to sufficient working capital. Organizations of all shapes and sizes find themselves working with banks and other financial institutions to fuel their growth. However, being approved isn’t always as straightforward as we’d like it to be. If you’re a small business owner and have exhausted other sources for loans, applying for an SBA loan should be the next step in your path to funding.

SBA loans are an alternative for businesses whose cash flows, credit histories and collateral are not strong enough to qualify for a traditional bank loan. To properly take advantage of every benefit offered by SBA loans, it’s important to know the ins and outs of the SBA underwriting and approval process.

In the next few sections, we’ll share what you need to know before applying for an SBA loan, how SBA underwriters function and the 5 steps of the underwriting process.

What Is an SBA Loan?

An SBA loan is a loan partly guaranteed by the U.S. Small Business Administration which is designed to decrease the level of risk for participating lenders. If your business has been turned down for a traditional bank loan, this loan type is a great funding option to explore next. The U.S. Small Business Administration also provides small business underwriting guidelines to ensure that borrowers are protected, as well.

How Long Does the Underwriting Process Take?

On average, the typical SBA loan takes 30 days to be underwritten. While this number can vary based on the SBA program you’re applying for (as well as your business’s unique qualifications), applicants receive their decision within one month.

The Advantages of SBA Loans

There’s a good reason SBA loans are one of the most sought-after financing products on the market. With long payment terms, low down payments and low interest rates, SBA loans are great solutions for long term ventures. These advantages can make a huge difference for small businesses that have a lot of potential but are just starting out.

What to Keep in Mind Before Applying for an SBA Loan

When pursuing an SBA loan, there are a few things that need to be taken into account.

For example, you need to have been previously declined by a bank in order to be eligible for an SBA loan. For an SBA lending partner to consider you as a good candidate for financing, the requirements of the program favor applicants in possession of sufficient collateral for repayment. This collateral can take the form of real estate or other assets (we’ll dive further into this information below).

In addition, a personal guarantee is required to secure the funding to offset the risk of financing your business.

How Lenders Underwrite SBA Loans

Underwriting refers to the process in which lenders evaluate your viability as a borrower. This involves a great deal of paperwork that shows both the SBA and the lender a snapshot of your financial history. Underwriting helps lenders determine whether or not your business is a wise investment, how much money is appropriate and dictate the amount and terms of your financing.

To summarize it, there are 3 main goals for SBA underwriters to accomplish:

  • Evaluate your level of risk to the lender
  • Minimize loss in the event you’re unable to pay back your loan
  • Reduce the cost of analyzing businesses wherever possible

The 5 Steps of the SBA Loan Underwriting Timeline

While you can receive funds from an SBA program in as little as 30 days, the key to approval—besides adequate financial qualifications—is keeping in contact with your lender’s underwriting team.  

Here are the 5 steps both you and the lender take when underwriting your SBA loan:

1. Research and Apply

By visiting the U.S. Small Business Administration’s website, you’ll find qualified lenders to service your loan. Once you’ve done your due diligence and found the lending institution you trust and offers the rates your business can support, it’s time to apply.

Regardless of whether you’re filling out an online application or working directly with a lender over the phone or in person, the questions you’ll be asked to answer are similar.

  • What does your business do?
  • How much funding are you seeking?
  • How quickly do you need the funds?
  • What’s your anticipated use of the funds?
  • What’s your business’s annual revenue?
  • What’s your personal credit score?
  • How long have you been in business?

2. Review Eligibility Requirements

While this is a time for the lender to get to know more about your business and whether or not you’d be a solid candidate for an SBA loan, you’re auditioning them, as well. Don’t hesitate to ask questions about how they determine their rates and term estimations and whether they charge additional fees for early payback.

Typically, SBA loan qualifications might include 2 or more years in business, annual revenue of $75,000 and a credit score over 650. Even if your business doesn’t immediately meet these qualifications, be sure to review the eligibility requirements with your lender. Ask an SBA provider to walk you through the application process and provide you with all details regarding loan program options. By doing this, you may uncover a different SBA loan program that’s right for you.

3. Provide Documents Necessary for Loan Underwriting

One of the easiest ways to expedite the SBA approval and subsequent funding process is to provide all of your documents upfront. Make sure you have your driver’s license, tax returns from the last 3 years, bank statements for the last 2 years and a voided business check. If you’re dealing with an online lender, you may submit all your paperwork online.

Beyond the items we’ve listed above, you may be asked to provide the following items:

Business organization documents
These include business licenses, permits, titles, lease agreements, patents or copyrights and approvals.

Business plan
A description of your business, what you do, additional information on your products and services, an outline of your team, future plans for your business.

Statement of purpose
A statement on how the loan will benefit your company, how you have invested your personal resources in the business. This should include an itemized explanation.

Financial statements
These are details regarding your personal net worth, debts and financial obligations; cash flow statements, income, expenses, profit and loss statements, payroll records, balance sheets detailing the value of your business. In many cases, this can include the most recent months of accounting software records.

You’ll also be required to submit a background check. Please note that your loan application will also require documentation of the citizenship information of the applicants. You should expect to wait for a period of around 2 weeks while the underwriting process ensues before continuing to the next steps.

4. Decide What Kind of SBA Loan You Would Like to Secure

There are a variety of SBA loan options that could be helpful to your business, depending on both what you qualify for and your intended use of the funds.

The most common SBA programs include:

7(a) Loan
Repayment terms are up to 7, 10 or 25 years. Maximum rates are from 7% to 9.5%. Loans are available for $5,000 to $5 million but usually, are given for $200,000 to $400,000. This can be used for refinancing debt, purchasing equipment, buying a franchise and expanding your business.

504 Loan (Certified Development Company loan or CDC loan)
It is designed to provide funding for the purchase of real estate/land, building improvements, new construction and machinery. These loans come with repayment terms of 10, 20 or 25 years and maximum rates of around 5%, all without any caps on how much you can be approved for. Ten percent down is required with an initial fee of 3%.

SBA Export Loan
This is for an exporter whose central business is based in the USA. This is ideal for a small exporter and acts very much as the other SBA loans. The Export Working Capital Program can be used to finance purchases from foreign suppliers, inventory or the production of export goods and services. This loan may have a quicker processing time than the 504 loans. As a way to encourage trade, the SBA provides lenders with up to a 90 percent guaranty on export loans as a credit enhancement.

The type of loan you pursue will influence how long the process will take as some loan types will take longer to complete. A certificate of good standing will go a long way in securing SBA financing. 

5. Receiving Offers and Funds

In most cases, approval takes between 30 and 90 days for an SBA 7(a) loan or the SBA Export loan and 1 to 6 months for a 504 CDC loan. The 504 CDC loan takes longer due to additional paperwork requirements and its need to be reviewed by two government agencies. Though you may have access to funds in as little as 30 days, the funding timeline can vary.

It’s best to review your own personal timeline with your lender to identify when your business should expect the funds in your account.

What to Expect with the SBA Underwriting Process

As we’ve learned, the underwriting process for an SBA loan is not as complicated as it may initially appear. The underwriting process is simply the lending company’s way of verifying all of the details you’ve submitted with your application and the risk your business may potentially pose to them.

The best way for you to treat the underwriting process is to have all your paperwork together. Typically, for eligible businesses, you’ll review the terms carefully with your lender, and funds can be in your account to grow your business in as little as 30 days.

While the SBA closing process may take longer than traditional loans, it is a suitable option for a small business owner whose credit is less than stellar.

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