10 mistakes made throughout the SBA loan process:
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1. Not having a credit score above 650.
SBA Lenders are looking for a credit score to be 650-675. Anything below make the chances marginal. You can use many services to research your credit score. Take steps to reduce your credit score before applying for your SBA Loan.
2. Incomplete personal financial information.
Not having complete financial information can reduce your chances of approval or even kill the application process. Make sure you have all of your personal financials in order before applying. These include your tax returns for the 3 most recent years, bank statements, other financial account statements and investment statements.
3. Insufficient business financial and operating statements.
Along with your personal financial information, your financial details of your business are crucial to the SBA Loan process. Lenders will be looking over these records in detail to evaluate the legitimacy of your existing business or new business idea. Make sure to include everything even if not great - it is better to give everything up front then have your lender discover something you didn't reveal at first (a sure killer of the SBA Loan application).
4. Don’t obtain current personal and business credit reports.
This goes along with the first 3 mistakes. In order verify your own credit score, you will need to purchase a personal credit report as well as a business credit report. These reports are important for the lender to determine your responsibility with debt and cash flow.
5. Business financial statements must be less than 60 days old and for three years.
It is important for you to keep detailed financial records as well as keep them on file. Lenders like to see organized financials (balance sheets, expense statements, bank statments, etc) and consider well kept records a sign of responsibility. Also, these records will show the viability of your business (and growth potential) which is important for the payback of the SBA Loan. The records must be current and ready before applying for your SBA Loan. Also, make sure to have the last 3 years of historical financial records available.
6. Personal and business Federal Income Tax returns must be current. Income tax returns must be for the last three years
Including any tax return from your personal files or business files is not sufficient. These statements must be the latest filed. In addition, you will need the previous three years of history on your tax returns for yourself and your business.
7. Incomplete explanation of business history and growth of business. Make sure it is complete. Include growth history and pattern of business.
This is important for the lender because it will shows a couple of things. First, have you really sat down and spent time thinking through the business model with the increased cash flow? Do you really think it will work? Do the numbers make sense? Second, are you passionate about your business? Will you duck out if things stop going well? Are you excited by the solutions you provide your clients?
8. Provide personal résumés of all principals of business, not just the primary.
Lenders want to know about the people they are lending money to. Elaborate on your resumes about your previous ventures/jobs. Make sure to highlight your training/education and most of all your experience. Don't just include professional items either. Including personal positions/hobbies shows you are a real person and that you have a wide range of skills.
9. Most wait until all paperwork is complete.
It is best to meet at an early date with lender and discuss business proposal. This saves unnecessary paperwork and time. Organize, plan and prepare everything to make sure all of your ducks are in a row. Go over everything several times and review your paperwork with a fine tooth comb. Preparation now will save a lot of work and reduce delay later on.
10. Make sure this is discussed upfront: will the borrower have 20-30% of down payment at proposed purchase price.