Securing a Small Business Administration (SBA) loan can be a game-changer for entrepreneurs looking to launch, grow, or stabilize their business. With competitive interest rates, longer repayment terms, and flexible use cases, SBA loans are often more accessible than traditional financing. But navigating the process requires strategy, preparation, and a clear understanding of what lenders and the SBA expect.
Whether you’re applying for your first SBA loan or refining your approach for future funding, here are the key dos and don’ts to keep in mind:
DO: Know Which SBA Loan Fits Your Needs
The SBA offers several loan programs, each designed for different business goals:
- 7(a) Loans: Most popular; used for working capital, equipment, real estate, and refinancing.
- 504 Loans: Ideal for purchasing fixed assets like buildings or machinery.
- Microloans: Smaller amounts (up to $50,000) for startups or community-based businesses.
Tip: Match your loan type to your business strategy. Don’t apply for a 504 loan if you need short-term working capital.
DO: Prepare Thorough Documentation
SBA lenders want to see that you’re organized, credible, and ready to repay. Be prepared to provide:
- A detailed business plan
- Personal and business financial statements
- Tax returns (usually 2–3 years)
- Legal documents (licenses, leases, articles of incorporation)
Tip: Include realistic financial projections and clearly explain how the loan will be used to grow your business.
DO: Build a Strong Relationship with Your Lender
SBA loans are issued by banks and credit unions, not directly by the SBA. That means your relationship with the lender matters.
- Communicate clearly and professionally
- Ask questions about loan terms, timelines, and expectations
- Follow up promptly with requested documents
Tip: Choose a lender experienced in SBA lending; they’ll guide you through the process more efficiently.
DON’T: Overlook Your Credit Profile
While SBA loans are more flexible than traditional loans, your credit still matters. Lenders will review:
- Personal credit score (usually 680+ is preferred)
- Business credit history (if applicable)
- Debt-to-income ratio
Warning: Don’t apply blindly if your credit is weak. Consider improving your score or exploring microloans and alternative financing first.
DON’T: Misrepresent Your Business or Financials
Transparency is key. Inflating revenue, hiding debt, or omitting liabilities can lead to:
- Loan denial
- Legal consequences
- Damage to your reputation with lenders
Warning: Always be honest and accurate. If your business is struggling, explain the challenges and your plan to overcome them.
DON’T: Ignore the Fine Print
SBA loans come with specific terms and conditions. Before signing:
- Review interest rates, fees, and repayment schedules
- Understand collateral requirements
- Ask about prepayment penalties or loan forgiveness options
Warning: Don’t rush the paperwork. A few extra hours of review can save you thousands in unexpected costs.
Final Thought: SBA Lending Is a Partnership
Getting approved for an SBA loan isn’t just about ticking boxes; it’s about demonstrating that you’re a responsible, growth-minded business owner. By following these dos and don’ts, you’ll position yourself for success and build a funding foundation that supports long-term sustainability.
Need help determining which SBA provider is best for you? Contact us today.
