Tips & Tools for Securing an SBA Loan

Joe McClure, District Director
Montana District Office
U.S. Small Business Administration

Your success is our goal – that’s why this month I’m focusing on dispelling the myths of business loans and giving you tips and tools so you are well prepared when applying for a business loan. The Small Business Administration is here to help and give you a leg up on getting a small business loan.

A common misconception is that SBA loans money directly to small businesses. We do not. We do, however, guaranty loans made through local approved lenders. The SBA guaranty reduces the risk to the financial institution and may provide the lender with more flexibility in credit decisions. Contact your lender directly to apply for an SBA loan or visit our website to find a local SBA lender.

We recommend approaching the financial institution you currently do business with first. They have first-hand knowledge about you, your character and your history. If your bank says no, don’t be discouraged; think of it as an opportunity to shop around! Some lenders do not make certain types of loans, so although you may not qualify for a loan at one institution, you may be approved at another.

During your initial visit, the lender will want to look at your business plan. Your business plan is the key. It should be comprehensive, and stand on its own in terms of describing your business and why it will be successful. It should include a management plan, a financial plan, a marketing plan and an operations plan. The most important component at this stage is the financial plan which should include a thorough analysis of your financing needs, a detailed cash flow statement, and how you plan to pay back the requested loan. If you need help developing your business plan, SBA and its resource partners have the expertise to help you craft a winning plan.

Keep in mind the three C’s of business lending - credit, cash flow and collateral. Credit refers to your history of paying your debts on time; cash flow is the measure of your company’s financial health (monthly income less monthly expenses) and demonstrates your ability to repay the loan; and collateral refers to your assets available to pledge to the loan. Be prepared to address these three C’s with your lender.

The lender will also be interested in what you, as the business owner, are investing in the project – this can be cash, equity or a combination of the two, but rest assure you will be expected to have some “skin in the game”.

We want you to be confident when talking to your lender about your potential project, so don’t hesitate to contact your local MBDA Business Center or SBA’s District Office for additional assistance. They have many resources available to you; Small Business Development Centers, SCORE Chapters, and the Women’s Business Center. They all provide counseling and training to assist businesses start, grow and succeed.

I’d like to leave you with three tips to remember when applying for an SBA loan:

1. Go in with a plan. A well thought out and thorough business plan will go a long way. And be aware of the 3 C’s: Credit, Cash Flow and Collateral.

2. Get some help. The SBA has programs and services geared toward assisting you with business fundamentals and funding, and can provide a list of SBA-affiliated lenders. You are not in this alone; take advantage of the resources.

3. Do your homework. Consult with your accountant, your banker, your attorney and your insurance agent - use these advisors to guide you and help you get started.