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Grow Your Business Finances

The Secret to Getting an SBA Loan

You've heard how hard it is to get a small-business loan, but it's not impossible. Chris Reilly, president of the small-business lending unit of CIT Bank, gives BusinessNewsDaily readers advice on how to seal the deal on an SBA-backed loan.

Speak the language. If you want a loan through the U.S. Small Business Administration, know what you want and know your options. In other words: Do your homework. The 7(a) loan program , aimed at startups as well as existing small businesses, is the SBA's most popular loan because it has flexibility. There are four types of loans within the 7(a) program: the express program, the export loan program, the rural lender advantage program, and the special purpose loan program.

Special-purpose loan programs also are available. So are microloan programs, disaster-assistance loan programs, and the 8(a) program, which is aimed at “socially disadvantaged individuals,” according to one of the SBA's FAQ guides.

Keep meticulous records. Use your documents to tell a good story and what you will use the loan for. Your paperwork should be tidy and detailed; it should include business and personal financial statements, tax returns, accounts receivable and accounts payable aging , a short business plan and reference letters. A complete package gives lenders everything they need to make an intelligent decision. 

Money isn’t free.
You'll need collateral to borrow against. The SBA requires that the borrower put up all available collateral against the loan, which may include the equity in your home. Of course, your business may have plenty of assets to offer up as a replacement for not paying back the loan, but realize that you'll also have to put down something like your mortgage or even your spouse’s assets.

Know your business. Before you ask for money, know what your lender wants to see in your business.  Be proactive: Get a copy of your industry’s Annual Statement Studies Report from the Risk Management Association and compare your projections. By doing so you increase your chances of getting the loan because you'll know what the industry norm is – and what your performance will be compared against. Statement studies typically present hundreds of companies’ aggregated financial information, categorized by NAICS codes (North American Industry Classification System), which show balance sheet, income statement, key financial ratios and other information. If you fit the norms, your chances are enhanced.

Resist risk. Traditional lenders hate risk. They want to see that they’re lending money to a pillar of society, not a risk-taking entrepreneur. So stick to what you know. If you have a family-owned bakery that’s been around for a few decades, and you’d like to expand your menu, you could be in luck. In this economic environment, it’s good advice to stick to your core business.