How to Make an SBA Loan Work for You

There are more than 28 million small businesses in America and about half the nations workforce is employed or owns a small business. But the nature of small businesses sometimes makes it difficult for hardworking, and sometimes overworked, owners to think strategically about things like expansion, growth and increasing market share.

Fortunately, many small business owners have access to Small Business Administration (SBA) loans. SBA loans are value-added loans: they have longer terms than conventional loans, they permit borrowers to borrow beyond their available collateral and they require smaller down payments. However, finding the way through countless forms or navigating through pages and pages of the government website can leave an already weary business owner exhausted.

The good news is that obtaining a business loan through the Small Business Administration (SBA) can be a seamless process, if you understand the following:

The SBA does not lend directly to businesses. They partner with banks and other financial institutions to provide a guarantee on the loan and ensure its repayment, but they dont directly lend money to businesses. So the first place to start in obtaining an SBA loan is with your local bank.

There are several types of SBA loans available to small businesses. The most common type is called a 7(a) General Business Loan. Among the requirements for this loan a business must have reasonable invested equity, use personal assets before seeking financial assistance, be able to show a need for the loan, and use the funds for a sound business purpose.

While theres a long list of business types that dont qualify for a 7(a), your banker can help you uncover whether this is the right loan for you.

The SBA also offers real estate and equipment loans. Sometimes, your buisness needs room to grow and expand. Other businesses may need to upgrade equipment, something that is extremely common for small dental and veterinary clinics where new technology is essential to keep up with the competition. Talk with your banker to determine what is the best loan for your business and what documents you need to secure the right loan.

SBA loans are designed for viable businesses that cannot yet qualify for conventional loans. Thats the beauty of an SBA loan: they are there to help your business when conventional loans are not available. At the same time, SBA loans are not structured to help businesses in financial distress. If your small business is struggling, talk with your banker. He or she will be able to guide you into a proper course of action or a position where an SBA loan is possible.

Now that you’ve got a basic understanding of how SBA loans work, here’s what to do to maximize your’s:

1. Have a plan. As a small business owner, the most important step you can take is to develop a business plan. Think about what you want to accomplish and where you want your business to go. That plan will be your roadmap. It will also be an essential document in qualifying for a loan. At all times, be organized and prepared before beginning your application. Make sure you have resumes, tax returns, and financial statements at the ready. But start with the business plan.

2. Look for a local bank with a specialized SBA Department. This is very important. Look for a bank that has experience with SBA loans. Better still, look for a lender that is part of the Preferred Lender Program (PLP), which empowers the bank to streamline the process and procedures and make the final credit decision on the loan. PLP banks have local decision-makers who understand the market and your business. The SBA process can be complicated. Working with a bank that specializes in SBA loans will make the process easiser.

3. Trust your banker. For a small business, your banker is your most important business partner. You know your business, inside and out. Trust your banker to know the banking business. An experienced SBA lender should be able to recommend the right product for your needsafter all, thats their job. A good banker will take the time to understand your business and your business goals. They will know the best ways to make your goals a reality. A long-term banking relationship for you and your business can be the foundation of long-term success.

Scott Harvey is Senior Vice President of Specialized Markets at HomeStreet Bank with over 30 years of SBA lending experience. HomeStreet is a full-service community bank offering consumer, commercial, and mortgage services to customers throughout the Western U.S. Scott and his team serve the greater Puget Sound area. You can reach Scott at (206) 254-7280 or [email protected].