When it comes to small business lending, SBA loans are hot. In fact, in 2019, the U.S. Small Business Administration (SBA) guaranteed over $28 billion to entrepreneurs who otherwise would not have had access to capital to start, grow, or expand their small businesses. Business loan approval, in general, is the highest it’s been post-recession.
SBA loans appeal to entrepreneurs because they tend to have longer payment terms and lower interest rates, but on the down-side, like any low-cost business loan, getting an SBA loan can seem overwhelming.
5 tips that guarantee a business loan in 2020
1. Do your homework
The more you know about your financial situation (credit history, credit scores, risk factors) as well as your industry and competition, the better positioned you will be to apply for—and get approved for—that SBA loan.
2. Know how much you need
Make sure you understand how much you need and how will you use it. Write out a budget for what you’ll do with the money if you secure a loan. Not only will this help you understand how that money can best benefit your business, but it may also come in handy when talking to a lender who, naturally, will want to know you have a plan for the funds.
3. Know your numbers
Good credit and solid financials are often key to getting an SBA loan. The SBA generally doesn’t have a minimum personal credit score requirement, but individual lenders may. In addition, certain SBA loans require lenders to prescreen applicants with their FICO SBSS score. This score can take into account the owner’s personal credit data as well as information from a business credit report and financial data. The SBA requires a minimum score of 140 (on a scale of 0-300), though many lenders require a score of 160 or above.
4. Ask for help
Entrepreneurs tend to try to “DIY” it all, but if that describes you, know you don’t have to go it alone in applying for your SBA loan. There are a variety of professionals who can help you prepare a business plan and create financial projections. These include a SCORE mentor, an SBDC (Small Business Development Center) advisor and a CPA, enrolled agent (EA), or accounting professional who works with small business owners. They can help make sure your financials are well-organized and lender-ready.
5. Invest in key person insurance
Insurance might be the last thing on your mind when applying for an SBA loan, but it could be the tool that ensures your business thrives, no matter what might happen to you.