You can’t get a loan directly from the Small Business Administration (SBA). However, this government agency guarantees some loans will be repaid. This increases your chances of getting the money you need for your small business from SBA partner lenders since the risk you present is lowered.
Small Business Trends spoke with Jim Fliss, Senior Vice-President and National SBA Manager at KeyBank. He teamed up with Mary Nguyen, owner of the Olive & Finch Eatery and Bakery restaurants, to provide us with 10 Small Business Must-Haves When Seeking SBA Backed Loans.
Tips on How to Get an SBA Loan
Make it a Team Effort
The first tip is about having a deep bench.
“Start with a team of trusted advisors,” Fliss says. “You should surround yourself with people like accountants, bankers and attorneys.”
Your team needs to do their individual parts to bolster your credibility to the bank and help with both the numbers and presentation.
Find a Bank that Understands the Process
Greasing those small business funding wheels is about working with a lending institution that’s familiar with SBA programs. Fliss says that you can narrow down your choices further by picking a bank that knows your market and industry.
Make Sure Your Business Rests on Solid Ground
Rapid growth can be intoxicating for small business owners. However, it can also be financially lethal if you don’t take a reasonable measured approach to it.
“If you’re looking at a second location, make sure the first one works,” Fliss says adding a solid business plan acts like a road map.
Fliss also says your small business needs to talk with the bank in their tongue.
“Banks speak the language of numbers,” he says adding that means you’ll need to have the historical balance sheet ready and the assumptions going forward.
Remember, they’ll be looking at the story behind the numbers so you’ll need to be ready to fill in any blanks.
Check Your Personal Financial Muscle
When it comes to SBA backed loans, the banks shine more of their spotlight on the guarantor’s personal financial strength. You’ll need to make sure that part of your package is in good order. Liquidity and personal credit are two of the big metrics here.
Don’t Sweat Conventional Collateral
“There is much less emphasis on collateral with an SBA loan,” Fliss notes. “That’s because the government guarantee is substituted in.”
It’s another shift in focus you wouldn’t see with a loan that didn’t have this type of backing.
Talk with Your Banker
Having regular conversations with your banker before you need a loan is another excellent idea.
“It’s always important to stay lockstep with your banker in terms of what your plans are,” Fliss says. He adds that approaching the bank only after a credit crunch isn’t the best way to get funding.
Put Things Down on Paper
A formal business plan is more than just a road map so a small business has a record of its plans. It gives any lending institution comfort because it shows bankers you’ve thought through the issues and come up with solutions.
Remember Good People Foster Successful Numbers
Having good numbers to show the bank to get the money you need starts with the right personnel. Mary Nguyen says having the right financial makeup and overall concept is only part of the recipe.
“There’s a lot of training that goes into opening up a restaurant. A lot of your success depends on having the right people in the right positions.”
Optimize Your Business Before You Apply
Simply put, this is all about making sure your small business is ready to handle growth. Nguyen says this aspect is especially important when opening a second location.
“It’s all about making sure your systems and processes are in place and that they actually work,” she says.
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