5 tips to help prepare for SBA financing

Small Business Administration (SBA) loans can be a vital financing resource for companies looking to grow, providing alternative structures when compared to traditional or conventional borrowing options.

If you think an SBA loan may be right for your business, you should first know the answers to these five questions.

1. Why do you need financing?

Your lender will ask how you plan to use the funds and how you arrived at the amount you need to borrow. Make your explanation as concrete as possible. If you'd like to expand to a new location or buy new equipment, provide the exact costs. New or expanded locations may need to be outfitted to accommodate your business, and new equipment may require installation and maintenance. Considering these details gives you a more accurate estimate of your funding needs and demonstrates to the lender that you've thought through your plan.

2. How will you repay?

Show your lender you are a good candidate for credit by documenting your cash flow and income sources for repayment. Lenders will review your credit history, so take steps to maintain strong personal and business credit scores. Make sure payments are made on time, keep your information current, and try to clear up any inaccuracies by contacting the credit agencies and correcting any errors. If collateral is required, know the value of the business or personal property you will pledge.

3. How is your business managed?

A detailed business plan will help lenders understand what your business does and why it's primed for further growth and success. It should explain how your business fulfills a unique need in the marketplace. It should also describe the company's organization, including you and your management team's relevant experience and educational backgrounds; historical financial data and future projections; and your target customer, including projections on growth trends. The SBA provides a guide on how to create a document that effectively tells the story of your business.

4. How will your financing increase revenue?

Demonstrate how this investment in your business will strengthen it and amplify your ability to repay. For example, expanding to a new location could expand your customer base, or buying a new piece of equipment could double your production output. Prepare a realistic, detailed financial projection to show why the investment could lead to greater gains for your company.

5. Are your documents in order?

Beyond the paperwork discussed above, submitting a request for SBA financing will require additional documentation, such as financial statements, personal and business tax returns, business licenses or certificates, and commercial leases. The SBA website includes a complete list of required documents for you to check. Begin assembling your paperwork early and make sure everything is up to date (such as your résumé), and generate recent profit and loss statements.

The bottom line

Applying for SBA financing comes down to paying attention to detail and demonstrating that you're well prepared for the application process, both of which may improve your chances for approval — and turn lenders into advocates for your business.