Top Mistakes Made By Small Businesses Applying for an SBA Loan
A small business loan guaranteed by the SBA is one of the most helpful tools for small businesses to get on their feet. A bank or lender offers an SBA loan, but the SBA guarantees it, creating less of a risk for the bank. However, if you’re considering SBA loans, there are some mistakes you will need to avoid.
Not Understanding How Much To Borrow
You should never go into a loan expecting to ask for the highest amount possible. While it may be tempting to ask for more money, you must determine your business’s goals and how much money you need to make. You want to avoid going too deep into debt over your business. Instead, you can just plan how to use the funds to the exact dollar amount. When a lender sees you as a responsible borrower, you may have a higher chance of receiving the loan.
Leaving Out a Collateral List
Banks and other financial institutions are interested in taking safe risks. They need to ensure that they will see a return on the loan, including interest. If you want a lender to see you as a serious candidate, you must provide collateral. While the SBA offers a guarantee to the lender, it is only for a percentage of the overall loan. Since the bank still takes on some risk, they will be less concerned about lending you money if you are upfront with a collateral list.
Lacking Cash Flow for the Loan
Before taking on any loan, you must be sure you can repay it. While the loan’s cash will help you pay off debts, pay staff and increase your business’s ability to make money, you need to prove to the lender that you will be able to pay it off. Most lenders want to see that you have $1.25 in cash flow for every dollar you borrow.
You will likely be denied the loan if you cannot prove your cash flow. To increase your approval odds, ensure you have the last three years’ worth of personal and business tax returns, detailed financial statements and realistic projections for the lender to see.
Increase Your Odds To Obtain an SBA Loan
As long as you avoid the most common mistakes made by small businesses seeking SBA loans, you should be able to increase the odds that you can obtain the loan. Sometimes, simple mistakes can lead to denial. Find an SBA loan with terms that suit your company’s financial profile.