By Patrick Boulay
Publisher

A loan through the Small Business Administration (SBA) has long been a traditional option for startups and small businesses. In these challenging times, you have to be on your game if you want to secure one.

Despite the gloom of the economic headlines about the lending credit crunch in the finance industry, SBA lending is still taking place, though at reduced levels compared to prior years, and you have to be prepared to compete at a higher level than before.

Over the past few months, I’ve talked to many SBA lenders in the Twin Cities from both big and small institutions. The message is fairly consistent. For the right borrower, there is money to be had. The question is how can you become the right borrower.

Here is some of the advice I was given when I asked these lenders how readers of New Business Minnesota could improve their chances of getting an SBA loan.

Stay informed about the SBA. Like many programs in Washington, D.C., the is in flux. For example, an effort that began last spring to boost SBA lending by raising from 80 percent to 90 percent the amount of the loan the SBA would guarantee ended in November. There is talk of it being reinstated and there is legislation pending in Washington.

Limits on SBA loans are also fluid. In October, the Obama Administration sought to have Congress raise the limits on the 7(a) general business loan program and the 504 program for long-term financing for land, building and equipment. Other changes include increasing the Microloan program limits from $35,000 to $50,000.

These and other proposed changes mean that what was available in October may not be around in February. Or there could be changes in February that could expand the program or make it easier for you to qualify. Even the application process and paperwork may change. Stay in touch with your banker.

Start preparing for an SBA loan before you need it. Applying for a loan or line of credit almost always takes longer than you think. Don’t wait to get your financials or other essential paper work organized. Be ready before the need becomes critical.

Your personal credit history needs to be in good condition. By definition, new businesses don’t have any history for a lender to look at. To determine credit worthiness, the lender will look at your personal credit history and how diligent you have been in paying your bills. Be prepared to personally guarantee the loan. If your credit report has any inaccuracies, get them fixed before you apply. If you have a good credit report, keep it that way.

The SBA requires that you have collateral – personal property or real estate – that will assure repayment of the guaranteed loan if you are unable to continue payments.

You need skin in the game. If you’re not invested in your own company, the SBA and the lending partner won’t want to invest either. They figure if you stand to lose your own money, you’ll work harder and protect their investment as well. How much skin do you need? Lending guidelines call for between 25 percent to 50 percent of the amount being sought, depending on the type of loan program.

Polish your business plan. This is the document that demonstrates your knowledge about your business and market. It shows you have done your homework, know who your customers are and have a plan to reach them. It’s important for the SBA and lenders to know you’ll have the ability to repay the loan. Your business plan should show them how you plan on making the money, your projected cash flow and other detailed financial information.

Your background counts. Lenders know that entrepreneurs who have prior experience in a business or industry are the best candidates for success. They look to your background to help them assess whether you have what it takes. If you are weak in an area, say marketing, be prepared to address that by having a partner or professional resource that will be part of your team. Your history and that of your management team should help assure lenders that their investment will be put to good use.

How much and what for? This isn’t a trick question, but not being prepared to answer it doesn’t make you look like the “in charge” business person you want to portray yourself as. Do your research. Talk to your accountant and other advisors about the terms of the loan. State clearly the exact amount, what it is to be used for and how it will benefit your company’s performance. Do not ask, “What’s the most I can get?”

Look the part. This is common sense, but bears repeating. When you present yourself and your business to a lender, make sure you leave the impression that you are the professional you claim to be, that you business is a well-thought-out enterprise. Dress the part of the successful entrepreneur. Present a clean, well-proofed business plan. Have your financials at the ready. Be the complete package the lender has been looking for. This is meant to reinforce the underlying business plan and financials, not replace them.

This is by no means a complete primer on SBA lending programs. You will have to do your own research to find if an SBA loan works for you and is worth pursuing. A good place to start is a meeting with an SBA lender who is interested in working with new businesses.

Getting that relationship started will help in keeping you abreast of any changes in the SBA program, answer question sand provide guidance in preparing a loan application.

NBM