SBA Loan Application Procedures: To get a small business loan it will help a great deal if you understand the procedures they use.

An SBA loan is guaranteed loan but the actual funds come from SBA participants (lenders). They make the decisions on whether to apply to SBA for a guaranty on their loan. Therefore, the keys to successfully achieve a business loan is to be adequately prepared before applying and to work with the lender during their processing.

The Basic Loan Application

The basic loan application is a written document that describes the business. It should include:

• the process by which it generates income.


• a brief history on how it started and got to the point where it now seeks the financing.


• the purpose of the requested loan proceeds.


• an explanation of how the loan will be repaid.

The last point, how the loan will be repaid, involves more than just telling them how much you will pay back each month. It will generally take up most of your time because it requires the most thought and time as it involves preparing and justifying assumptions about the income and expenses of the business as if the loan funds have already been received.

Applications must also include historical and current financial statements. If the loan request is to be considered by SBA, these statements must be current, that is, within 90 days of application. Since most business loan applications are not requested right after the close of a businesses fiscal year, there is a need for updating a balance sheet, profit and loss or income statement, and a reconciliation of the net worth. This usually necessitates the generation of an additional set of financial statements.

Help With Your Application

If you are just starting out you will need to prepare pro forma financial statements (projected financial statements) which show in advance how the financial side of the business is expected to progress through the next 3 years. Remember, the understanding of finance and financing is one of the owner's principal duties. The process can and has been taken on by many business owners and so can you.

The loan application process can appear involved and even complicated to persons unfamiliar with the process. This does not mean that you will not get your loan if you do not understand the process or how to prepare pro forma financial statements - it just means you will need to get some help. Your options to get help include:

• your accountant if you not familiar with the requirements of tax authorities and general accounting. ($1,000-$12,000)


• Small Business Development Centers (SBDC) network. See this link for a listing of the SCORE Chapters in your area.


• Service Corp of Retired Executives (SCORE). These organization will work with the applicant to help them become familiar with the loan application process, understand the importance of the business plan, and assist in the preparation of the application and supportive documents. However, completing the actual plan and documents is the responsibility of the applicant. Their services are generally free. Look at this link for a listing of the Small Business Development Centers serving your area.


• Self Help: if you would like to learn how to prepare these loan documents (how to write a business plan) then you can start with my Business Plan Outline.

Once the application is ready, the applicant should take all available financial and other business information to a financial institution. I highly recommend that you start with the bank that has your checking account. If your bank does not have experience with SBA loans shop around for a bank or credit union that does have the experience of making loans using SBA's Guaranty loan programs.

Tips Working With Lenders

The SBA will tell you that you should always request that their lender make the loan directly and if the lender is unable or unwilling to make the loan by themselves, you can request that the lender consider making their loan in conjunction with an SBA guaranty. Generally, most SBA approved lenders will do that anyway if you qualify. Then the lender will ask you to complete a second application for forwarding to the SBA by the lender.

If the lender is not willing to participate, the applicant should find out why and learn what they can do to improve their application. The applicant should do all they can while working with the lender to obtain favorable consideration.

The SBA no longer has any direct loan funds, so the historical requirement that and applicant needs to be turned down by the banks before being able to apply to SBA for a direct loan is no longer applicable.

Note: my new book Tips and Traps for Writing an Effective Business Plan will be in stores sometime in January/February. I will make an announcement here when I know they are in stock.