3 Surprising Facts About Small Business Loans

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When the time comes to invest in new resources, a small business loan from First Bank SBA can help you stimulate production and growth. But what should you expect when applying for a loan? Is the road to approval quick and effortless, or is obtaining financing a complex, protracted process? The answer, it seems, lies somewhere in between.

We’re experts in SBA loans—in fact, that’s all we do at First Bank SBA. Our responsive, experienced SBA specialists will partner with you, guide you through each step, and ensure a simple and hassle-free loan experience.

Of course, the more prepared you are as a loan applicant, the greater your chance of getting a small business loan. With that in mind, let’s take a look at three surprising realities behind small business loans.

1. Banks need lots of information

Evolving economic and regulatory conditions are changing how lending institutions approach small business loans. Compared to the years before the Great Recession, banks must request a much larger volume of information about an applicant’s business.

“Applicants need to provide a clear and concise plan about what they want to do,” says Lee Watson, First Bank Senior Vice President and City Executive. “We need to understand what they are doing, how much money is needed, and how they plan to pay it back.”

At the end of the day, our goal is to help you finance your business activities. To do that, we need a lot of background information to confirm your readiness. In addition to your business plan (which focuses on how you’ll invest funds and repay your loan), here are the documents we’ll want to look at with you:

  •  Business tax returns for the past three years
  •  Year-to-date financials for the subject business
  •  The purchase contract for acquisition or copies of notes to refinance
  •  A project estimate for construction (if applicable)

“The more prepared you are as an applicant, the greater chance you have of getting a loan,” said First Bank SBA senior vice president and national sales manager Stephanie Castagnier Dunn. “First Bank SBA specialists will work with you to make sure you have everything you need to meet SBA standards.”

2. Personal finances matter

Another big surprise for small business loan applicants—and this speaks further to the bank’s request for information—is that personal finances matter too.

Our process begins with a simple loan qualification. In addition to information related to your business, we’ll also ask you about your individual financial history. Besides financial data related to the need for a loan, we’ll review additional financial information:

  • Credit history: This includes your FICO score, credit card balances, and record of on-time payments.
  • Personal financial statement: This document lists all of your assets and liabilities.
  • Personal tax returns: Access to your last three tax returns helps us predict your business income for the current year.

Watson says this gives First Bank a “global picture” of your financial situation and helps your lending professional understand how all of your income streams, expenses, and lines of credit interact with one another.

“We’re trying to confirm that an applicant has the personal assets to help secure the loan,” he says. “Typically, we’re looking for a credit score north of 700, and above 720 is ideal. Personal liquidity helps, too, but we understand that it might not always be there, especially with startups.”

3. There are no hard and fast rules

By now you may be wondering whether having existing debts will prevent you from getting a small business loan. After all, any bank is going to ask you for lots of information and will be able to see if you already owe money to other lenders.

We’ve hand-picked an experienced team of lending experts who make the process of achieving an SBA loan easier than ever. We rarely require that our borrowers have a debt-free financial situation. Every business is different, and we understand that. At First Bank SBA, there are no hard and fast rules about debt and equity.

“We don’t think of loans we make as just transactions, and we never rely strictly on formulas for loan approvals,” Dunn said. “We work closely with each individual to provide the best possible loan solution for every small business owner.”

A significant strength in one area—for example, your personal credit score—can offset a weakness in another, like a DSCR just above 1. Your outstanding debts do matter, but the fact that you have debts doesn’t mean your loan will be denied outright.

“Have a clear, concise plan, and be ready to tell your story,” Watson says. “If you can afford to have a CPA prepare your financial statements and projections, even better. It’s always nice for a borrower to say, ‘Would you like to speak with my CPA?’”

At First Bank SBA, we’ll keep you informed through the entire SBA loan process. We’ll make any necessary adjustments along the way, finalize your loan, and get proceeds in place so you can focus on what matters most: your business.