4 Tips to Boost Your Chances for an SBA Loan

By Ben Pimentel

Buying new equipment, opening a new branch or refinancing a high-interest loan for your small business?

SBA loans, with low annual percentage rates and longer repayment terms, are an attractive financing option that could help you grow your business.

But being approved for a loan backed by the U.S. Small Business Administration takes time and hard work. Strict requirements mean you may get rejected. That's why some business owners simply don't bother applying.

But you can give your application an edge, two experts tell NerdWallet. Here's how:

1. Clean up your credit and finances

Your financial track record is key in applying for an SBA loan. Do everything you can to boost your credit score and avoid financial missteps that could be seen as a red flag to an SBA lender.

For example, "maxing out your credit limit is not a good idea if you want low-cost business financing," says Leo Jacobo, head of lending operations at SmartBiz, an online lender that specializes in SBA loans. Generally, it's best to keep your credit utilization under 30%.

Jason Lumpkin, general manager of e-Lending at Live Oak Bank, an SBA lender, says paying your bills on time is a must for an SBA borrower.

2. Get organized

You will be asked to submit pages and pages of documents, including bank statements, tax returns and records of outstanding debt.

"Good loans demand good due diligence," Jacobo says. "Put your financial papers in order before you apply for a loan. The process will move swiftly, and you can get funded faster. If you're having trouble getting started, consider hiring a freelancer to set up and implement an office paperwork filing system."

3. Be an expert on your business

In many cases, the SBA lender will probe beyond the documents you submit to determine your eligibility. You need to show that you know your business inside and out.

"Be prepared to talk shop," Lumpkin says. "Be prepared to explain your business model and the plan for success, including the product or service, the market and competition, your sales and service process, and all other critical business components. ... Be prepared to answer questions about your credit report, your spending habits and your personal assets and liabilities."

4. Shop around for the best SBA lender

SBA loans are issued by participating banks and lenders, but "SBA lenders are not created equal," Jacobo says.

Lumpkin recommends working with an SBA "preferred lending partner," one that was, in essence, pre-screened to approve loans without first getting the SBA's OK.

Borrowers who work with a preferred partner could speed up their application process by weeks and increase their chances of being approved.

A "responsive and knowledgeable" SBA lender makes the application that much easier, Jacobo says.

Benjamin Pimentel is a staff writer at NerdWallet, a personal finance website. Email: bpimentel@nerdwallet.com. Twitter: @benpimentel

For related information, visit NerdWallet's resources on how to start a business.

To get more information about funding options and compare them for your small business, visit NerdWallet's small-business loans page.