Steps to Prepare for SBA Loan Approval

The Small Business Administration (SBA) issues federally guaranteed loans to companies who pass their eligibility requirements. They do not offer financing; their program is an assurance to lenders that the loan is less of a risk since it’s backed by the government. Most business owners know that an SBA loan can offer a lot of perks – lower down payments, lower interest, and longer repayment terms than conventional loans.

To qualify for such a desirable loan, one must be able to fill all the requirements. By having a firm comprehension of how to obtain an SBA loan, you can save a lot of time and frustration.

  1. Why are you looking for financing & how much do you need?:

    It’s very important to outlay a clear reason for the loan before seeking financing. Whether you’re looking for an SBA loan or an investor, they will want to know why you need the money and what your forecast is for the outcome of the investment. All SBA loans and many other conventional loans require a detailed explanation for why the funds are necessary and how it will be used. The lender may also request a detailed business plan. Be realistic about the funds you’re requesting.

  2. Research whether an SBA loan is right for you:

    There are many different types of financing that business owners may utilize. Many common types are: conventional bank loans, SBA loans, crowdfunding, business line-of-credit, or investor funding. Most SBA loans require that the company has been active for 2+ years, business and/or personal collateral, a personal credit score of 680+ and adequate business credit, no outstanding delinquencies or defaults reporting on business or personal credit, and usually a down payment on the loan. They also require verification that the business cannot gain funding elsewhere without causing undue hardship.

  3. Make sure your credit is in order:

    The SBA uses a unique credit score to determine risk for their loans. The FICO Small Business Scoring System (SBSS) is used for loans and lines of credit up to $1 million.  Your lender will use a combination of your personal credit and business credit reports/scores/indexes to come up with this unique score, the highest possible score being a 300. Most lenders want to see a score of over 150 to qualify at all. You will not know the exact business credit bureau/score that your lender will choose to decipher your risk as a borrower. We recommend purchasing a copy of all three business credit reports/scores (Dun & Bradstreet, Experian, Equifax) and purchasing your “right” personal credit reports and FICO scores. No matter how prepared you are, if your credit scores do not pass the threshold, you will not be approved for an SBA loan. To get a federally backed loan you need to be prepared to jump through some hoops and have all your ducks in a row.

  4. Gather all your documents:

    Once your business and personal credit is in order make sure all your documents are as well. Here are some of the documents you should have prepared:

  • Explanation of fund allocation and amount being requested along with your business plan
  • Detailed financial documents – both business and personal
  • Proof of ownership
  • Business license
  • Any loan application history
  • Both business and personal tax returns

Speak to an experienced lender

You want to work with a lender who has been able to issue SBA loans and understand the unique variables that come with each business they work with. The SBA also has a list of Preferred Lenders who have so much knowledge of SBA loans that they’re promoted and supported by the SBA.  Preferred Lenders may also be able to get your loan approved more quickly.

An SBA lender will not be able to offer approvals if you do not have all the right information and if your personal and business credit scores are weak. Consult your lender, review your reports, and speak with a credit specialist who understands where credit needs to be for approval. You can minimize the frustration and anxiety of seeking a business loan by preparing yourself for all the possible scenarios and outcomes.


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