How To Be Approved For An SBA Loan To Buy A Business

Being approved for an SBA loan to purchase a building isn’t as difficult as you would think. It’s all about planning and being prepared at the time of loan shopping.

By following a simple to-do-list, you can easily get approved for an SBA loan to purchase your dream building.

In this article, we are going to cover what you need to do to qualify for a small-business loan. We are also going to share a few tips to help ensure that you are ready to apply for an SBA loan.

 

Build Your Credit Scores

To ensure that you are approved for an SBA loan, you will generally need a credit score that is 680 or more. Otherwise, it will be incredibly difficult to be approved to purchase a building.

If you are unsure about whether or not you would be approved for an SBA loan based on your credit, there are many options to review and improve your credit for free.

One of our favorite sites to check your credit is CreditKarma.com. It’s a great site to review your credit, dispute items on your credit that should not be there, and gain free advice to boost your credit scores. Credit Karma also gives suggestions of trusted organizations that can help you build credit if you are unsure or overwhelmed by doing it all yourself.

 

Find Important Documents

As in all potential contract situations, you will be required to supply important financial documents. By providing these documents, you will help demonstrate your business creditworthiness.

If you don’t know what financial documents you should bring? Don’t worry, we’ve got you covered! Ask us about our SBA Loan Readiness Checklist to help make this part of the process much easier.

There are many documents that you could bring but a few of the important documents needed to buy most businesses are:

  • Purchase Agreement
    • Your purchase agreement will need to detail the following:
      • final purchase price of the business
      • What you are buying
      • All requirements for sellers and buyers upon closing
      • Letter of Intention
      • When the ownership of the business transfer will be effective
      • Whether or not the seller will help with your business transition
      • Who is responsible for existing liabilities
  • Tax Returns (Business and Personal)
  • Cash Flow Statements
  • Year-to-date profit and loss
  • Balance sheets
  • Information on long-term contracts or outstanding business debt
  • Business Assets List
  • Business License and any other organizational documents
  • Rent records (if your business has tenants)

 

If you are unsure if you need anything other documents for your business, contact your lender. They are available to help you prepare for your loan.

Create A Business Plan

Creating a business plan improves your odds of being approved for a loan. Business plans help your potential lender see your vision for your business and feel confident about whether or not they will receive a solid ROI (return on investment).

By having a business plan, you will be able to persuade them to work with you. Thus, if you have never created a business plan, we recommend that you do some research to ensure your business plan fits your business type and clearly conveys what your business is about.

Thankfully, The SBA has a great tool that will help you easily create a business plan! All you have to do is follow the steps and you will create a plan that you can feel confident about.

Offer Collateral

Though your business may have a history of performing incredibly well, there is always a possibility that it can fail. By offering sufficient collateral, you will help provide security to your lender’s investment in the unlikely event that you cannot pay back your loan.

In most cases, offering personal or business real estate collateral will yield the best response. This is due to its ability to retain its value. However, some lenders will accept other types of collateral. You can offer vehicles, equipment, and other business assets to help strengthen your odds of being approved for a loan.

Understand Lender Requirements

For the most part, the basic requirements that need to be met before requesting a loan are the same for a broad range of industries. There are only a few businesses that would not qualify for an SBA 7(a) loan, feel free to contact us to find out if your business qualifies for an SBA Loan.

In general, here are a few basic lender requirements that you should be aware of:

 

  • The business has to have been active for at least two years(three years is ideal)
  • Your personal credit score must be above 650
    • (680 seems to be the minimum “sweet spot” for most lenders)
  • Your business has to be based in The United States
  • You must be a U.S. citizen or Lawful Permanent Resident
  • You must at least 21 years old
  • More than $100,000 in annual revenue
  • You cannot have any tax liens that are outstanding
  • You cannot have any foreclosures or bankruptcies within the past 3 years
  • You cannot have any recent settlements or charge-offs
  • You must be current on any government-related loans
  • You must have sufficient personal and business cash flow that demonstrates a minimum of 3 years of interim financial data, debt payments, and tax returns

 

Of course, there are always variances for loans facilitated by different lenders. Every lender operates differently. Most lender will review new applicants on a case by case basis. However, if you have the basic requirements, there is a good chance of receiving approval for your business.

Conclusion

Getting approved for an SBA loan requires planning and patience. Some SBA loan approved can take upwards of 120 days which is why it is so important to carefully plan and make sure you have everything you need before you submit your application.

If you need help getting your information together, or are unsure of whether or not an SBA loan is right for you, contact one of our agents for a free consultation.