8 Ways to Enhance Your Chances of Getting approved for an SBA Loan

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As someone who was an SBA loan officer for seven years, I've seen firsthand how important it is to understand lender requirements and prepare thoroughly when applying for an SBA loan. In this guide, I'll outline 8 key steps to improve your chances of securing an SBA loan. My hope is that following these steps can help ensure a smoother application process for you!

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Gather Necessary Documentation in Advance

It is very easy to remember working with all of the clients who had as many of their documents ready and organized because it was pretty uncommon. It’s hard to understate how much easier it makes the process for everyone involved! Of course there are several documents you can’t prepare ahead of time or that a lender may specifically request that wouldn’t have been a standard request, but there are a handful of core documents you should absolutely expect to provide and they are probably the most labor intensive and would delay any loan application the most as you prepare them. Lenders rely heavily on these documents to evaluate your financial health and the viability of your business plan, so it’s important to have at least the basic documentation prepared, especially the ones they initially need to get into underwriting. 

Here are some of the big and most important documentation you will need in the SBA loan application process: 

• Business Financial Statements: Lenders will need to see your profit and loss statements, balance sheets, and cash flow statements from at least the past three years.
• Personal Financial Statements: For all major owners of the business, personal financial statements are a must.
• Tax Returns: Make sure to have both business and personal tax returns from the past three years ready.
• Business Plan: Your business plan should be detailed, outlining your business model, market, products, competitive analysis, and financial projections.
• Personal Financial Statement: Many lenders will require their own PFS form but it’s a worthwhile exercise to complete one on your own to document all of your personal financial details including assets and liabilities. 
• For a more complete list with other potential documents categorized by startup, existing business, and acquisition; you can check out this free SBA loan application checklist 

There are some who recommend having a conversation with an SBA lender BEFORE writing a business plan or creating projections to gain an understanding of how much a lender may consider or if they will even consider your application. This could save you some extra work so that when you prepare a business plan projection you already have that insight rather than going back through and making edits to your already careful made plans. I, however, believe the first impression to the lender is worth doing your homework and preparing what you can ahead of time and tweaking as needed.

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Have the Right Expectations

Different lenders have different appetites, some different rules, different processes. But when it comes to the SBA, and really, in lending in general, there are some universal similarities. Before applying for an SBA loan, it is important to understand this and set some realistic expectations:

• Personal Guarantees: Most SBA loans require personal guarantees from anyone who owns 20% or more of the business. This means if the business fails to repay the loan, then the personal guarantors are responsible for making the payments..
• Collateral Requirements: Although SBA loans typically have more flexible collateral requirements compared to conventional bank loans, SBA lenders are still required to secure as much collateral as they can to mitigate the SBA’s risk in order to secure their guarantee. It’s not necessary to understand that technical detail but just know that it’s a myth that SBA loans don’t require collateral..
• Owner Investment: Depending on the type of SBA loan, you will need to contribute at least 10% of the “project costs” personally. This can be cash from any source you can get it, typically ranging from 10% to 20% of the loan amount.
• Interest Rates and Fees: SBA loans generally offer competitive interest rates, but these can vary based on the loan amount and terms. Be aware of possible fees related to the application and processing. SBA rates are going to be slightly higher than a conventional loan because of a few reasons but they will still be much more friendly than dangerous online lenders, factoring companies, credit cards, etc.
• Loan Processing Time: The processing time for an SBA loan can vary widely. Typically, it ranges from a few weeks to a couple of months, influenced by factors such as the type of SBA loan, the loan's complexity, the completeness of your application, your responsiveness, and the current workload of the lender. For a specific estimate tailored to your circumstances, it is advisable to consult directly with your lender for an estimate. Ensure you set realistic timelines and do not anticipate immediate approval. Also, do not expect your lender to move fast, if you are not moving fast!
• It will likely take more than one lender or loan application. So keep your head up and use our tips in the next section to help.

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Find the Right Lender for Your Business

Unfortunately, oftentimes finding a lender who will not only approve your loan request but also be supportive & experienced is very difficult. It can be a demoralizing process and most people just have no idea where to look beyond a bank. There’s no way to really make finding a lender “easy” persay, but it’s very doable to make it not *impossible*. Just have the right expectations that it may take several tries.

My recommendation would be (if you have a decent relationship) #1 to talk to your hometown bank first just to get feedback and use it as a learning experience to see if they even consider your type of business/situation for lending. Try to talk to a human and gather as much feedback as you can prior to any sort of hard credit check. The more of those you can avoid along the way- the better. Just assume this is going to be a “no” so focus on the learning experience and because most SBA lenders require you to be declined for a conventional loan first to be eligible.

#2 Then, use our free SBA Lender Finder Tool to find which SBA lenders are the best at making loans to businesses like yours, in your same stage in business, and in your state. These should be the most experienced lenders in your area.

#3 And if those are “no-go’s”, check out CDFIs and Microlenders last if you can work with a smaller loan. 

If you're working with a loan broker, just be mindful that they are incentivized to work with certain lenders that may pay a certain fee or might just get you approved but don’t have the best loan terms. Loan brokers can be great, but they also have their own motivations. So it may not necessarily be the right type of lender for you or the one that has the highest chance of approving you. Not all lenders are the same, and some may have more experience or a better track record with businesses in your industry or stage of development. Here are some things to consider when searching for a lender:

• Research and Compare: Look for lenders who specialize in SBA loans and have a history of working with businesses in the same industry and general geography as you. Compare their terms, interest rates, and approval processes. Check out our fee SBA Lender Finder tool down below!
• Ask for Recommendations: Seek advice from other business owners, mentors, or industry associations to find reputable lenders.
• Check Credentials: Ensure the lender is an approved SBA lender. This can usually be verified through the SBA’s website.
• Consider Local Options: Sometimes, local banks or credit unions can offer more personalized service and better understand the local market and economy - however, just because you have banked with a local bank for years and years, you should not expect that to increase your approval chances. Different lenders have different specialties, portfolios, programs, and risk appetite.
• Understand Their Preferences: Different lenders have varying preferences for loan applications. Some might prioritize certain industries or loan sizes, so finding one that aligns with your needs is important.
• Consider Trustworth Non-Bank/Deposit Lenders: Sometimes it can be challenging to get approved for a loan (even an SBA loan) if you are a startup or have less than stellar credit or lack collateral. In the event that this is your situation, and you don’t need a massive loan - consider looking into lesser known non-bank lenders that are CDFI’s or SBA Microlenders. They are often local, nonprofit, and are very personalized and mission driven. They just typically have smaller loan programs like maybe $50 to a couple hundred thousand TOPS.

I know that finding the perfect SBA lender that suits your business's needs can often feel like searching for a needle in a haystack. That’s why we created a free SBA Loan Analyzer Tool to simplify this process for you, but we’re also here to help provide some pointers if you need help. Watch this video to see how it works:

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Share the Important Details Early in the Process

Share the dirty details early in the process before you get much further into it. It will save yourself time, energy, and potentially embarrassment if you get to a certain point and you don't divulge certain things. Lenders appreciate honesty and thoroughness in loan applications and if they feel like they actually understand and trust your forthcomingness and situation, then they are more likely to go to bat for you with underwriting or loan committee reviews.. 

Unfortunately I’ve had a few personal experiences when I was a loan officer when we were very far into the application process only to discover that an applicant had an unresolved legal situation or prior criminal conviction they didn’t disclose. Or even worse, after the loan had already closed which led to loans being called due. That gets very messy and I assure you that you don’t want to be in a binding legal contract with the SBA under false pretenses.

Here’s some things to consider:

1. Disclose Financial History: Any issues such as past bankruptcies, tax liens, or credit problems should be disclosed upfront. Lenders can often work with you if they know the full picture from the start and what has been done in order to repair those situations.
2. Explain Credit Issues: If your credit score is lower than ideal, provide context and explanations. Demonstrating a plan to address these issues can also be beneficial. Yes, poor credit creates an uphill battle for a loan application. But if your credit challenges are actually a result of unresolved medical bills that are in the process of being disputed and removed that you can prove - that may not be a dealbreaker for a lender.
3. Clarify Financial Statements: Ensure your financial statements are clear and accurate. If there are any unusual or confusing items, explain them to the lender before they need to ask. And for the love of all that is good in this world, do not avoid reporting any cash or income from the IRS. Just because someone paid you in cash does not mean that shouldn’t be properly accounted for. Because if that cash doesn’t exist in your tax returns, it can’t exist on your loan application. You don’t get to avoid paying taxes but then also get the benefit of that cash on your balance sheet.
4. Provide Necessary Documentation: Gather all required documents and any additional information that might support your application or explain any unique challenges you’ve endured. This includes personal and business tax returns, financial projections, and any relevant legal documents.
5. Address Any Legal Concerns: If there are any legal issues or disputes involving your business, be upfront about them. Lenders prefer transparency and will appreciate your honesty.

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Present Accurate Financials and Realistic Projections

Having your financials in order demonstrates to lenders that your existing business is well-managed or that your startup/acquisition has a solid plan to be successful. Here’s some tips:

• Review Financial Statements: Regularly update and review your business’s financial statements, including balance sheets, income statements, and cash flow statements. Accuracy in these documents is critical and it’s worth the cost to hire professional help not JUST for tax season but year round reporting and accountability.
• Create Realistic Projections: Base your financial projections on realistic assumptions and industry benchmarks. Overly optimistic and unexplainable projections can raise red flags with lenders that can be hard to walk back.
• Work with Experts:  If you're unfamiliar with financial modeling, enlisting the help of professionals to prepare or review your financial statements can be particularly helpful. Tools like ProjectionHub’s CPA-prepared DIY projection templates provide a structured approach to creating accurate and professional financial projections. If you need additional support, we also offer a template fill-out service where we  build the projections for you. 
• Include Detailed Assumptions: Clearly outline the assumptions behind your financial projections. This transparency helps lenders understand how you arrived at your numbers and demonstrates thoughtful planning.
• Prepare for Questions: Be ready to explain and justify your financials and projections. Lenders may have questions about your assumptions, growth plans, or financial health. So if you have done proper research into your pricing, costs, etc. you should be able to easily answer these questions. And if you have worked with experts like us at ProjectionHub, we’ll help you answer those questions!
• Ensure Consistency: Maintain consistency across all financial documents. Discrepancies between different statements or projections can undermine your credibility and create uncertainty for lenders.

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Ditch Long and Generic Business Plans

Instead of a 100-page document that can cloud important details, here’s how to craft an effective business plan especially if you’re a startup:

• Focus on Essentials: Include only the most important information that directly supports your loan application. Avoid lengthy narratives and stick to the facts and what you actually NEED in the present moment. Your long term plans can be really exciting but you don’t want the prospect of something big and great down the road, to distract or scare a lender from what you need TODAY.
• Demonstrate Market Opportunity: Clearly show the market opportunity for your business. Include any market research data and analysis that supports your business's potential for growth. This is not only vitally important for your business plan and loan application, but it will also give you insight and confidence in your idea & business.
• Show Traction and Customer Acquisition: Highlight any traction your business has already gained, such as sales, customer feedback, or partnerships prior to official launch. When I was an SBA loan officer at Bankable, time and time again the most supported startup loan requests were businesses who had started their business as a side gig and then had the opportunity to scale it up. If you can demonstrate that you aren’t actually starting at 0 on day 1, that’s a big advantage. 
• Leverage Reliable Templates: Utilize ProjectionHub’s free business plan templates to structure your plan effectively. Templates can help ensure you cover all necessary sections without unnecessary fluff. And if you really feel overwhelmed, our team can write your business plan for you!

• Be Specific: Tailor your business plan to your industry and business type. Generic plans can seem unconvincing and may not address specific lender concerns.
• Update Regularly: If you are actively seeking funding or financing, keep your business plan up-to-date with the latest information and projections. If you tweak your plans for a startup cost, staffing hire, supply cost, etc. make sure you update your projections and then business plan. An outdated plan can raise doubts about your business’s current status and future potential. Your plan should be your source of truth.

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Strengthen Your Application Personally

I wish that business loan application decisions were able to just be based on your idea or small business. I really do because there are so many good ideas and businesses that will never happen because of it. But the reality is that what you bring to the table personally is just as important as your business and in the case of a startup, even more important than the business in many cases. Unfortunately not all businesses work. And there is a lot of risk associated with starting and owning a business. So, in an industry that is required to reduce their losses as much as possible in order to generate a return, lenders must lend to crest-worthy individuals. Your personal financial and credit situation is just about the most vulnerable and revealing thing someone can know and it can say a great deal about you. So here are some ways to prepare for a loan application “personally”.:

1. Maintain Personal Income: If possible, keep your current job while starting your business. Lenders appreciate seeing a stable income source, as it reduces the risk associated with your loan. Many people think it’s a sign of commitment to quit their job and focus on the business full time when really what the lender would rather see is that you are willing to maintain reliable income detached from the business as long as possible. This says a lot about you as person and a borrower. I know this is not easy, but when we had applicants who planned to keep their job for 6, 12, 18+ months until the business could realistically support them, that gave us so much more confidence in approving a loan.
2. Add a Co-Signer: Consider bringing in a co-signer with a strong financial background. This can reassure lenders and increase your chances of approval. This one can be uncomfortable, I know. But again, if you believe in what you’re doing and you know someone else who does too, having a cosigner can be a massive way to strengthen a loan application. 
3. Show Personal Investment: Demonstrate your commitment to the business by investing your own money. Lenders are more likely to approve a loan if they see that you have a personal stake in the success of the business. Most SBA loans will require 10% of the project costs (aka loan amount in most cases) to come from the owner to share in the risk.
4. Prepare Personal Financial Statements: Provide detailed personal financial statements to give lenders a clear picture of your financial health. This includes assets, liabilities, income, and expenses. Most lenders have their own form, but you can find one linked on our free SBA Loan Application Checklist too.
5. Offer Additional Collateral: Be ready to offer personal assets as collateral if necessary in the case that the business assets won’t add up to the loan amount. This could include property, vehicles, or other valuable items. Pretty much anything with a title, deed, or serial number of a larger piece of equipment that is free and clear.It’s not meant to be personal, it’s just the lender doing everything they can do reduce their risk. Lenders don’t want your stuff, I promise you. It's a hassle to liquidate your belongings. 

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Demonstrate Ample and Relevant Experience

Show the lender that you know what you're doing, you know what you're getting yourself into and you're primed and ready to do what you say you're going to do. Proving that you and your team have the necessary experience to run the business successfully can significantly influence the approval of your SBA loan application. Here's how to effectively demonstrate your experience:

1. Highlight Industry Experience: Clearly outline your experience in the industry relevant to your business. If you have a proven track record in a similar role or sector, make sure to emphasize this early and often in your business plan.
2. Showcase Your Team: Detail the experience and qualifications of your key team members. Lenders are more confident in a business led by a capable and experienced team.
3. Include Relevant Achievements: Mention any significant achievements, awards, or recognitions that you or your team members have received in your field.
4. Supplement with Mentors or Advisors: If there are gaps in your expertise or skill set, demonstrate how you are filling those gaps with additional ownership partners, managers, key employees, or advisors/mentors. Those are listed in the order of significance on purpose. Alone or together, make sure there is no doubt in a Lender’s mind that you are capable of executing your plan.
5. Provide Case Studies or References: If applicable, include case studies or references that highlight your previous successes. Positive testimonials from previous employers or clients can add credibility.
6. Explain Transferable Skills: In cases where you may not have direct experience in the industry you plan to start a business in (see point 4), think deeply about what skills and experience you do have that may be transferable. For example, maybe you’re planning to open a clothing boutique but you’ve had 5 years of professional experience in social media marketing. Clearly the ability to market the boutique and following trends is hugely advantageous so be sure to highlight that.

Approach the SBA loan process as an opportunity to thoroughly assess and present the strengths of your business. By doing so, you not only improve your chances of loan approval but also lay a robust foundation for your business's future success. Whether you're meticulously preparing your financial statements, refining your business plan, or strengthening your personal financial profile, each effort moves you closer to turning your business aspirations into reality. We wish you the best of luck in your SBA loan application journey and feel free to take advantage of our FREE SBA Review if you’d like to get some guidance on wherever you are in the SBA preparation or application process!

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