May 16, 2024 - 8 Min Read
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To be approved & funded with an SBA startup loan can take between 1-3 months. On average, we get our startup businesses funded in 8 weeks with an SBA loan. But let’s go into why startup SBA loans can take so long and ways to speed up the process.
The SBA is a loan program through the government to help small businesses obtain working capital. This is not the government giving you money. This is the government telling lenders to give you money and in return if you default, they will give the lender up to 85% of the defaulted money, this is called an SBA guarantee.
In return for this, lenders have to follow strict rules set by the SBA in their SOP (Standard Operating Procedure). This outlines everything lenders need to do before giving you a business loan to ensure they are entitled to the guarantee. This is what normally makes SBA loans so time consuming.
However, you can speed up the process by preparing your documents ahead of time. This is because it’s normally the paperwork required that holds up the process. Here is what you will need to be approved for an SBA startup loan:
Now let’s go into detail on each one, so you can start preparing for your SBA startup loan.
Entity documents are the legal documents that makes your business a registered business with the federal government and the state your business is located in. Make sure you have your EIN number filed with the federal government and your business is registered with the state you plan to do business in. If you do not have these documents you will not be able to move forward in the process.
A startup equity injection is the amount of money you will have to put into your business before getting your loan. An equity injection is usually between 5-15% of your project amount.
For example, if you want to open a startup franchise and everything altogether costs $350k, you will need between 5-15% of that project amount to invest into your own business, and the lender will give you the rest.
Don’t wait last minute to decide where your equity injection is coming from, this can hold up the process.
You will need a thorough business plan (which is normally 15+ pages) describing:
Not having your business plan answer all the necessary questions, will leave a lender with unanswered questions about your startup business. And the more they go back and forth with you trying to piece everything together, the less confident they will feel in your ability to successfully carry out your vision.
You will need 2-3 years of financial projections (depending on the lender) that outline how much money you will make with your business each month, and what your business expenses will be. You will also need to have written explanations on how you got to those numbers. These explanations will need to make sense, or the lender can lose confidence in your business plan.
SBA startup lenders will want to see your tax returns. They will request the last 3 years of your personal tax returns. If you have less, exceptions can be made.
If you have business tax returns, they will request those too. A startup does not have to have business tax returns, but can have 1-2 business tax returns. Some lenders will no longer consider you a startup once you have 2 or 3 business tax returns.
Note: Make sure these tax returns are appropriately filed with the IRS. If they are not filed with the IRS this will slow down the process.
If you need a business license or permit to operate your business in your local community, state, district, or county, then this will most likely be a requirement to be approved for your SBA business loan. Make sure your documents are current, and in the right name of the business you are applying for.
If you have any collections or charge-offs, you may need to pay them off before being funded. Most SBA lenders will require you to be current on all of your debts. If you have unpaid collections, then most likely they will ask for you to settle those collections. You may be able to get away with a charge off if it’s not a collection.
Some exceptions may be made depending on the lender and the SBA program as some are more lenient than others. However, at the very least you may need a written explanation for the collection account.
Most lenders will require your tax lien to be on a payment plan. Tax liens over $50k must be on a payment plan. If you have a tax lien work on getting it on a payment plan before going for your SBA startup loan. Tax liens are not searched for until your file is well into the loan process. Therefore, just when you thought everything was smooth sailing, everything can come to a halt unexpectedly.
If you have the above documents before you start the funding process, you may be able to get funded in as little as 4-5 weeks.
To discuss your situation and how long it will take you to receive an SBA working capital loan for your business, request your free consult below.
If you need more startup loan help, make sure you check out these articles:
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