An important source of financing for U.S.-based entrepreneurs is the Small Business Administration (SBA). The SBA provides short- and long-term loans to eligible, credit-worthy start-ups and existing small businesses that cannot obtain financing on reasonable terms through normal lending channels.The SBA will be asking how much do you need, what it is for, and for how long will you need it. These tips will guide you through the answers…1.Create strong business plan. Really, what are you going to do with the funds from an Sba loan? As background, the Sba loan criteria is your business' proven ability to generate cash flow. What's vital to them is that you have a greater chance of repaying the loan than other businesses. They want to see if your company will actually earn sufficient profit to allow you to pay them back. Hence, the SBA requires the submission of a business plan.Through a business plan, the SBA wants to see that you have a clear path and understanding of the business you are in; that you have researched the market, and that you have studied the prospects of your business. What you want to clarify is that you only lack capital in order to make greater profits. Think of an engine with strong performance just waiting for fuel. The SBA wants to see careful financial plans as to how the business can make more money. More importantly, they want to know how you will repay the loan and when the business will earn enough profit margin to at least cover the monthly payments.SBA TIP #1: Hire an MBA student from a local university to help create or review your business plan. Be sure to work with them create a proforma with the written plan clearly in mind. Submit your business plan to a commercial building loan broker and place their advice within the plan before submitting to the SBA.2.Show stake in the business by the borrower. The SBA wants to see you personally invested in your business. In the SBA's view, those business owners who put their own money into the venture are more likely to push hard for the success. Depending on the loan program, the SBA will require the borrower to have invested between 25 to 50 percent of the loan amount requested. Generally, the SBA doesn't underwrite 100% of the venture. As an example, if you're seeking a $1,000,000 loan, you should have an equity investment of $250,000 to $500,000 in the business.SBA TIP #2: Consider taking a limited partner or equity investor into your business before applying for an Sba loan. Not only will a low cost Sba loan be attractive for an Angel or Mezzanine investor, you'll have a second set of eyes and approval for your business plan. As well, you will have less personal credit risk by diluting your credit risk. See your commercial building loan broker for ways to obtain greater leverage with a co-signor.3.Obtain a personal credit rating over 650. A good credit history signals a person's gauge for credit worthiness. Your track record in paying your bills will be an important component in the loan application process. The SBA partner banks, which provide the money, usually runs a credit examination of the borrower , which then submits the results to the SBA. The SBA will also review the financial statements of your partners, along with officer or stockholders with 20 percent or more ownership.The SBA will require that you (and the principals of the business) to personally guarantee the repayment of an Sba loan. Therefore, you must show a history of honoring and repaying personal debts on time. Personal bankruptcies and poor personal credit history may lead to difficulty in obtaining an Sba loan for your business.4. Help CollateralizeSBA Lending. An Sba loan is not just a personal loan. Borrowers are required to provide collateral for SBA-guaranteed loans. Collateral can be in the form of real estate or personal property. When borrowing for your business, the commercial building you are buying is the main form of collateral, but other business assets should be included in your balance sheet and asset/liability table. The SBA and the SBA partner bank want to be guaranteed that somewhere, somehow they can get back the money they lent you, if you cannot repay the loan from normal business operations.SBA TIP #3: Just prior to submitting your Sba loan application, work with your Sba loan broker to improve your balance sheet. This might mean delaying vendor payments through improved or elongated payment terms. Or you might move personal assets into the business that might previously been separate. Look to show liquid and visible assets. For instance, you might consider selling a personal coin collection, classic car, artwork or a trove of precious metals as these items generally do not count as collateral for an Sba loan.5. Understand Banks don't know your business, so they expect you to be an expert. Personal background and experience in this business is key for the SBA. After all, management capability is a key component for SBA lender banks and SBA-guaranteed loans. They are investing in you as much as the business. So, the SBA and the banks want to see a history of success. They want the loan proceeds to be handled productively. The best way for them is to look at your past. The other way to ensure productivity is thatyou (and your management team) know the industry, the market and the business . They want to make sure that you -- or someone in your management team -- can make the business work.SBA TIP #4 If you don't have any experience with the given business, be sure to show your prior success in other business. Thereafter, bring someone on your board or management team that knows the business.  This gives banks the assurance that someone will guide you through the running of the business. If you're investing in a franchise, try to secure training and certification before you try to borrow from the SBA. Again, this expertise could also come from a new investor or co-signor, as well.6. Improve the Conditions and terms of the Sba loan. In general, the SBA would like to see physical assets such as a commercial building loan followed by physical inventory or other hard assets. The SBA and their conduit banks often prefer to approve loans for items that can be identified, have lasting value, and can be repossessed and sold if things fail. Hence, the desire for real estate and inventory.SBA TIP #5 The timing and age your business can also effect the conditions and terms of an Sba loan. For instance, a business that has been existence for more than a year (2 years or more even better) stands a better chance to get an Sba loan compared to a new startup. The interest rate may be lower in comparison and the loan amount higher. After all, the SBA wants to see solid financial statements from their borrowers to insure a bright success.
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