Tips for Getting an SBA Loan for Your Startup

The Small Business Administration backs loans to small businesses, and while they can be a big help to your startup, understanding all the different kinds of loans available and the requirements can be overwhelming. Whatever type of loan you are considering, there are several steps you can take to increase the likelihood of approval.

Check Your Credit

You can still get funding with bad personal credit, but your chances improve if it is good. Start by getting copies of your credit report to see where you stand. This also gives you the opportunity to identify and correct any errors on those reports. Keep paying your bills on time as well.

If you are like most people, you probably took out some student loans to help cover the costs of your education. Taking out a student loan while paying for college is a great investment against future earnings, but if you can refinance those loans at a lower interest rate, it may help you pay them down and improve your score. You should also look at paying down any other existing debt.

If there is negative information on your report, such as reported collection accounts, this does not automatically mean that you will not be approved. You can contact the collection agency and ask them if they will stop reporting the account if you work out a payment plan with them and stick to it. You also need to look at the credit score for your business. The SBA screens applicants using the FICO LiquidCredit Small Business Scoring Service for one of its loans. This score looks at both owners' personal credit and the startup's credit.

Show Them the Money

You're more likely to get approved if you can show that you have already invested some of your own money in the business. Your personal investment shows a lender that you believe in the company, and this makes the lender more likely to believe in it as well. In addition, you need to organize your financial information, including projected financial statements and your profit and loss statement.

Lenders also want to know what the plan for the money is. For example, do you need to buy fixed assets? Have you got a specific project in mind? Will you use it as working capital? In short, the more financial details you can provide, the better your chances.

Review the Requirements

It may sound obvious, but it's easy to be so caught up in all the elements of getting your business and paperwork in shape that you miss critical early steps, such as determining whether you qualify as a small business in the first place as it is calculated by the SBA. You also may need to demonstrate your experience in the industry or the experience of any business partners to lenders. In loaning money to a startup, they often expect at least one person to have a background in the field in which the startup is operating. If this is not the case, you might want to consider bringing in someone who does.