SBA loans are some of the most sought-after financing options for small business owners due to their high borrowing amounts, long repayment terms, and low-interest rates. However, the funding process for these loans may feel like an intimidating venture, especially if you need the cash fast. But, if you’ve been patient with the process and recently got approved, you’re probably asking yourself, what happens after the SBA loan is approved?
Understanding what happens after an SBA loan approval is crucial for every business owner. This guide will also highlight some tips to speed up the process.
Typical SBA Loan Timeline
The exact time frame for an SBA loan approval varies based on various factors, including the loan type, loan size, and the lender. Generally, it takes two to three months to process an SBA loan from start to finish. Here are four key steps you’ll need to follow when applying for an SBA loan:
Preparing the SBA Loan Application Package
The first step in the SBA loan process is preparing your application package. This includes having a clear picture of your business goals and determining how much financing you need. Once you have a goal in place and know the amount you’ll seek to borrow based on your business needs, you should find an SBA-approved lender and complete your loan application package.
The documents you’ll need during the application vary by lender but will typically include:
- Business Plan
- Personal and Business Tax Returns
- Profit and Loss Statement
- Balance Sheet
- Business License
Underwriting
Once you’ve submitted your loan application, the next step is underwriting. This is where the lender reviews your application and determines whether you’re a low-risk borrower using a soft credit pull. Unfortunately, the underwriting process isn’t speedy. It may take anywhere from two to three months, potentially longer if the lender requires additional details.
Approval
If you meet the lender’s requirements, you’ll likely get approved for the loan. The time it takes to get an approval letter will vary based on the lender and whether you’ll need to submit additional documentation.
Loan Disbursement
The final step in the SBA loan application process is disbursement. After approval, the lender will disburse the funds in days or a few weeks. The funds can be used for various purposes, including working capital, purchase of equipment or inventory, and business expansion. Some SBA loans, though, restrict how you can use the funds.
What Does It Mean When Your SBA Loan Is Approved?
Getting an SBA loan approval means that the United States Small Business Administration has guaranteed a specific percentage of the loan amount. This means less risk for the lenders because the SBA will pay a portion of the borrowed amount in case you default.
It’s important to note that the SBA does not approve or deny loans. Instead, the government agency guarantees part of the loan to help small business owners access the capital they wouldn’t otherwise qualify for traditionally.
How Can You Know If Your SBA Loan Is Approved?
The SBA will send you a letter about their decision via email. If your SBA loan is approved, you’ll get a letter of approval stating the percentage of the loan the U.S. Small Business Administration guarantees. If your application is declined, the letter will explain why you didn’t qualify. Some of the common reasons for SBA loan denial are not meeting the eligibility requirements, poor credit history, or insufficient collateral.
What Happens After You Get Approved?
If you recently got an approval letter for an SBA loan, you’re probably deliberating about what happens next. After your SBA loan is approved, the next step is to work with your lender to determine the loan terms and access the funds, including repayment terms, interest rates, and other aspects to be agreed upon before signing the loan agreement. Once you finalize everything, the funds will be available for use.
It’s a good idea to plan out how you intend to use your borrowed funds before you start applying them to your business. This will help you keep track of your finances, use the funds for the right purpose and achieve your business goals. Consider your short-term and long-term business needs when drafting a plan. Also, don’t forget to make your loan payments on time to improve your credit score and get more favorable loan terms in the future.
How Long Does It Usually Take to Get the Loan Funds?
Most small business owners forget that the SBA doesn’t disburse funds to you directly. While you may qualify based on SBA guidelines, it’s up to the lender to decide whether to approve your loan or not and the specific interest rate to charge you. Once your loan is approved, the lending institution will reach out to you to discuss the loan terms.
Generally, most lenders look at several documents when determining your eligibility for a loan. The documents you’ll need to present may differ depending on the lender but typically include tax returns and financial statements, like balance sheets, profit/loss statements, and cash flow statements. Some lenders may also require your personal documentation, including your personal credit score and personal financial statements. In addition, you may be required to pledge collateral to secure the loan.
The time it takes to get SBA loan funds depends on the lender and the loan program. Some lenders disburse the funds in a couple of days, while others may take a few weeks.
Some Tips to Speed Up the Process
Processing an SBA loan from start to finish typically takes two to three months, sometimes longer, but there are a few ways to get the funds you need earlier. Here are a few tips to speed up the process and get funding within a shorter time period.
Get an SBA-approved Lender
Working with an SBA-approved lender is one of the surefire ways to fasten your SBA loan application process. The SBA-approved lender will handle the underwriting process in-house, meaning you won’t have to submit much paperwork as you would with a non-SBA lender. Plus, you’ll likely get approved and funded much faster.
Prepare All the Requirements Beforehand
Before you submit you make an application for a loan, ensure that you gather all your documentation, including your balance sheets, profit and loss statements, cash flow statements, and business tax returns.
Depending on the lender, you may also need to provide your personal documentation, so it’s a good idea to prepare them ahead of time. With all the necessary documentation in place, you won’t have to waste time searching during the process, which will, in turn, reduce the amount of time it takes to process your loan.
Anticipate Inquiries on Your Business and Personal Finances
Lenders have SBA guidelines they follow when determining a borrower’s eligibility, and one of them is looking at your business and personal finances. They do this to ensure that your business is in a position to repay the loan comfortably. That said, lenders will ask questions about your finances; some will even need proof of financial stability.
Know the Types of Collateral They Accept
You might need to provide collateral to secure an SBA loan, which is an asset that a lender can seize to recoup the losses from the loan if you default. Collateral can include accounts receivable, outstanding invoices, investment accounts, and personal assets like your house or car.
Knowing what type of collateral the lender accepts is crucial as it will help reduce the back-and-forth during loan processing. The form of collateral you’ll need may vary based on the lender, loan type, and loan size.
