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Wouldn’t it be nice if the moment you needed an SBA loan to buy a business, refinance some debt, or purchase a building, you could snap your fingers and have your funds magically appear in your bank account? Unfortunately, like anything worthwhile in life, it’s not that simple. While obtaining SBA financing for your business isn’t completely painless, there are certain mistakes that borrowers often make when going through the loan application process that will often slow down the process, result in your SBA loan application being declined, or leave you regretting ever taking the loan in the first place.
1) Incomplete or Sloppy Paperwork – This is the most common (and most avoidable!) problem I see. Business owners don’t think of the application of an audition, but it kind of is. Put yourself in the lenders shoes. If you, the borrower, can’t manage to follow the 1st step of the SBA loan process, how much confidence do you think they’ll have in your ability to run a business. That aside, if you give them paperwork in bits and pieces, I can tell you from experience that it can delay the entire process. A lot of information needs to be timely (like less than 30 or 60 days old), so if you take a month to submit the paperwork, parts of it might be stale by the time you submit it.
2) Not Understanding Loan Terms – Taking an SBA loan entails borrowing hundreds of thousands, or even millions, of dollars. It’s shocking to me how many times over the years that people said they didn’t really understand the loan documents they were signing. Don’t get me wrong, you are probably not going to understand every single word in the SBA loan documents, but in most cases, that’s why you have the option to have an attorney review the closing documents.
I get it. Not everyone likes numbers and finance. But when you are borrowing that much money, you NEED to know this stuff. You are the CEO. You need to know if you are pledging your home, who is guaranteeing the loan (and exactly that that means), what the rates is (and how the rate can change), and why type of loan you are taking (SBA 7a, 504, conventional bank loan. For most people, an SBA loan is the single largest obligation they will ever undertake. To not fully understand the details of that transaction can have disastrous consequences down the road.
3) Taking On Debt Right Before or During the Application Process.
As you are likely aware, good personal credit is usually a pre-requisite for most loans, and SBA loans are no exception. So it should go without saying, being financially diligent right before a loan application is submitted is a must. For some reason, some people simply don’t connect the dots on that idea. Before you apply, it’s a really good idea to get a look at your credit report so you know your score, and also know what’s on it. In many cases, loans will be declined not because of bad personal credit, but because a borrower simply has too much debt. Lenders are required to perform a “global” cash flow analysis. This means is they need to make sure that you will be able to afford both your business and personal obligations. Some borrowers assume that if a business is profitable, then the loan should be approved, not understanding the concept of “global” cash flow. If, before you apply for your 7a loan, you go out an buy a new house or a new car, the bank will want to ensure that the “draw” you take from the business is enough to pay for all those new toys. How upset would you be if your loan were turned down because you had to have the BMW?
Jason Milleisen can answer your questions about applying and being approved for an SBA loan. Feel free to call (toll free 1-877-436-4533) or email me (firstname.lastname@example.org). If you retain me to help you with your financing needs, I’ll give you a rebate after your loan closes equal to 10% of my commission, up to $500.