How To Apply For SBA Loans For Business Owners
This guide covers how to apply for SBA loans. Gustan Cho Associates is a one-stop lending shop where viewers can get the latest mortgage and real estate news on commercial, business, and residential lending and real estate market forecasts—all types of residential lending with no overlays on government and conventional loans.
NON-QM Loans where homebuyers can purchase properties with no waiting period after bankruptcy and foreclosure. Bank statement loans and no income verification loan programs.
All types of commercial lending. Hard money and private money loans. SBA Loans are becoming increasingly popular for business owners needing commercial financing and seeking a government-sponsored commercial loan program to help them where they do not qualify for traditional commercial lending. This article will discuss How To Apply For SBA Loans For Business Owners.
Commercial Versus Residential Lending
Residential mortgage banking companies and residential loan officers who work for residential mortgage bankers get compensated their commissions by the mortgage rates they charge the borrower. The concept of residential and commercial lending is the same. Mike Kortas, President and CEO of NEXA Mortgage, LLC, says the following about residential versus commercial lending:
There is much more scrutiny and regulations on residential versus commercial lending because regulators assume commercial real estate investors are sophisticated investors. Most commercial lending is not regulated by state regulators, whereas all residential lending is regulated by state and federal regulators.
Before proceeding with your commercial loan process, make sure you have your fee agreement signed. Ensure there are no misunderstandings on how much your commercial mortgage loan broker will make on your transaction because you, the borrower, will pay that amount.
How Do I Learn More About SBA Loans
Gustan Cho Associates has dozens of affiliate and subsidiary partners to be the best for commercial, business, and residential lending. There is a reason why we are known as the one-stop mortgage lending shop. We partner with Lending Network, LLC, to make a one-stop lending shop of expert commercial and residential mortgage lenders under one roof and simplify mortgage learning and lending.
Lending Network, LLC is the commercial lending arm of Gustan Cho Associates. The Lending Network, LLC team consists of loan officers who are experts in commercial lending.
The commercial lending industry is so complex that many business owners do not know where to go for guidance on applying for SBA Loans. Gustan Cho Associates was created and launched for that purpose, where commercial and residential borrowers can contact us.
Frequently Asked Questions on Commercial, Business, and Residential Loans
Gustan Cho Associates is teamed up with GCA Mortgage FORUM, the nation’s largest one-stop lending online FORUm consisting of buyers, sellers, residential and commercial loan officers, realtors, attorneys, insurance professionals, and other professionals in the real estate and mortgage industries. Our moderators and associate contributing editors are mortgage and real estate experts. Many of our contributing associate editors are veteran commercial investors and loan officers who can guide you in applying for SBA loans. Small Business Loans by the SBA is a phenomenal government loan program for business owners who need business loans. Gustan Cho Associates has prepared the seven how to apply for SBA loans.
How The SBA Loan Process Works
We can help viewers and our clients directly or indirectly how to apply for SBA loans. Gustan Cho Associates consists of licensed mortgage loan originators. Gustan Cho Associates is a five-star national commercial and residential mortgage lender headquartered in Oakbrook Terrace, Illinois. We are licensed in most 48 states, including Puerto Rico, Washington, DC, and the U.S. Virgin Islands. Gustan Cho Associates is known nationally for being able to close on residential home loans in 21 days and where lenders cannot close.
Gustan Cho Associates is known nationwide for its one-stop lending shop business model on commercial, business, and residential loans. We are also know by many people in the mortgage and real estate industry for no-lender overlay policy on government and conventional loan:
Gustan Cho Associates consists of licensed loan officers specializing in nationwide commercial, business, and residential lending. Our licensed support personnel is available seven days a week, evenings, weekends, and holidays where we can help you get qualified for any residential lending.
How To Apply For SBA Loans: Does The Business Qualify?
Now if the SBA Borrower meets the minimum qualification and eligibility requirements, the business needs to meet the Small Business Loan Requirements. Here is the scope for small business owners to qualify for a small business loan with the Small Business Loan Administration.
In this section, we will cover the bullet points in meeting the U.S. Small Business Administration eligibility requirements: We will go over what makes small business owners eligible for SBA loans and how to apply for SBA loans. Is it a small business as defined by SBA (generally means under 500 employees or less than $7.5 million in annual sales)?
Is it a for-profit small business planning or doing business in the United States? Has the SBA borrower have skin in the game where he or she is willing to put his or her down payment? Has the SBA borrower tried using other financial means, including their financial resources or personal assets, before seeking assistance from the government lending programs such as the U.S. Small Business Administration?
What Are the Reasons Borrowers Need SBA Loans?
SBA borrower needs to show the need for the loan proceeds and for what purpose they need the funds. Is it a bailout? Is the SBA loan used for reserves, and does the borrower have sufficient reserves? Is it an expansion? Is it the inventory? Is it due to cashflow problems? SBA would like to know the purpose of the funds and if it is for good business reasons. SBA borrowers cannot qualify for an SBA loan if they are delinquent on any government debt and if the debt is in collections or not in good standing. SBA borrowers can view a complete explanation of the SBA’s 7a eligibility requirements here.
Step 1: Determine Eligibility To See Whether Or Not You Qualify For Small Business Loans With SBA
The first step in applying for an SBA loan is to determine whether you are eligible and whether your business qualifies for a small business loan with the U.S. Small Business Administration, also commonly known by many as an SBA Loan. SBA has requirements that an SBA borrower must meet to qualify for a U.S. Small Business Administration Loan, also known as SBA Loan. The following are the minimum eligibility requirements that SBA borrowers need to meet:
How To Apply For SBA Loans| Minimum Credit Score Guidelines
The U.S. Small Business Administration mandates a minimum 680+ FICO score for all primary business owners: If you qualify with all other aspects but do not meet the minimum credit score requirements, contact Gustan Cho Associates at 1-800-900-8569. Text us for a faster response. Borrowers can email us at gcho@gustancho.com. The commercial lending division of Gustan Cho Associates, Lending Network, LLC, are experts in helping borrowers how to apply for SBA loans. Commercial Lending Division,, will help you boost your credit scores to meet the minimum credit score requirements.
What Is The Minimum Down Payment Requirement on SBA Loans?
There is a minimum down payment requirement: A down payment of 10% or more is required if you use the loan proceeds to purchase a business or real estate property.
What Type of Collateral Does The Small Business Administration Require
The SBA Loan doesn’t need to be 100 % collateralized. However, it will be much easier to get the SBA Loan if you can show skin in the game by bringing in more collateral or a down payment, so it will provide that you are showing strength and less risk to the SBA Lender.
What Type of Risk Do Commercial Lenders Have on SBA Loans
SBA Lenders want you to show that you are a good risk and that failure is minimized. Having more than two years of experience in your line of work. Showing documentation of business experience, licensing, payment history with vendors, and character and credit reference will make the lending process easier.
Business startups can qualify for an SBA 7(a) Small Business Loan. However, history proves that startups come with major credit risks. If you are an SBA borrower with a start-up in mind, it is best to show strength by providing as much collateral and down payment as possible.
Lenders like borrowers who show strength and skin in the game, as well as strong business experience, success in their field of business, a solid business plan, and a proven track record. The borrower’s management experience in the field of business they are starting up is extremely important and will be a deal-maker or deal-breaker. A proven track record that your business has been profitable for many years is extremely important.
How Does a Typical Business Loan Work With SBA Loans
The Small Business Administration (SBA) GUARANTEES 90% of Loan Amounts Over $1,000,000. MOST LENDERS BORROW @SOFR AND FLOAT THESE LOANS WITH SOFR; THE LENDER HAS ONLY 10% EXPOSURE IN CASE OF DEFAULT. Let’s take a case scenario for illustration purposes:
CASE SCENARIO EXAMPLE: Hotel Purchase with an SBA Loan:
- HOTEL PURCHASE PRICE: $1,120,000
- SELLER PAYS SBA FEES/CLOSING COST/ CARRIES BACK $120,000 NOTE
- LENDERS LOAN AMOUNT IS $1,000,000 /SBA GUARANTEES $900,000 @ 90%
- THE LENDER’S EXPOSURE IS $100,000
- LENDER COLLECTS 5 POINTS ($50,000) AS LENDER FEE, 7.5% OVER SOFR $75,000
- LENDER COLLECTS A 6-MONTH PAYMENT RESERVE AT CLOSING AS WELL AS $70,000
- TOTAL FEES IS LENDERS POSSESSION $50,000 + $70,000 = $120,000
- LENDERS EXPOSURE $100,000
- $20,000 – BROKERS 1% EQUALS = $10,000 / $10,000 COMPANY EXPENSES
POTENTIAL LOSS $0
POTENTIAL PROFIT $415,000 OVER 5 YEARS FROM 1 $1,000,000 DEAL
POTENTIAL INCOME FIRST YEAR $40,000 (FROM 5 POINTS) $40,000 + $75,000 INTEREST OVER SOFR @ 7.5% $75,000
5-YEAR PREPAY, SO AN ADDITIONAL $75,000 X 4 REMAINING YEARS OF $300,000
Step 2: Finding A SBA Approved Bank/Lender
Once you have determined that you meet the minimum eligibility requirements for an SBA Loan, your next step is to find a commercial mortgage lender that can help you how to apply for SBA loans.
If you are an SBA borrower seeking an SBA 7(a) Loan with a business loan amount of $350,000, you can email us at gcho@gustancho.com. One of our commercial loan officers will contact you, and we can help you get your SBA Loan process started.
Email us at gcho@gustancho.com with your business plan if you want larger SBA Loan amounts. The amounts you are applying for, and we will have one of our commercial loan officers look at your business plan and get back to you within 24 hours with a lender that can help you.
Step 3: Assemble and Organize Your SBA Loan Paperwork
If you decide that an SBA Loan is the right business loan program for you, you must get your paperwork and documents ready to submit to your commercial SBA Loan Officer. Below is the list of documents you need to get prepared to submit to your commercial loan officer:
- Three years of corporate and personal tax returns
- Business Financials for the past three years
- Profit and Loss (P&L) Statement
- Projected Financials or Pro-forma and prior three years of financials
- Partnership Agreements, LLC Paperwork, Corporation Paperwork, Ownership, and Business Certificate/License
- Loan Application History
- Résumé of principal shareholders and key employees, and management staff
- Business Overview and History as well as business goals and mission statement
- Business Lease and rental payment history
Buying An Establish Business
If you are planning on using an SBA loan to purchase an existing established business, the following documents will need to be provided to your SBA Lender:
- The most recent Profit and Loss Statement and Balance Sheet of the proposed business that is being purchased
- Previous three years of the federal income tax returns of the business that is being purchased
- Proposed Bill of Sale of the business and property, if applicable, as well as Terms of Sale of the business
- Proposed purchase or contract price along with an itemized inventory list, accounts receivables, heavy equipment or machinery, leases, furniture and fixtures, and other assets/liabilities.
A business plan on how you expand to continue the proposed new business purchase, changes, scope of work, addition/elimination of employees and staff, company’s management structure and vision for the next three to five years, and pro forma financial projections should be included with your SBA Loan Application.
Step 4: How To Apply For SBA Loans: Completing The Proper SBA Loan Forms
Once you have completed the above steps, you can complete the official paperwork to apply for the U.S. Small Business Loan from the U.S. Small Business Administration. Below are the links to the necessary forms required for you to complete Gustan Cho Associates have outlined how to apply for SBA Loans by outlining and streamlining the comprehensive guides on each form and how to complete them below:
SBA Form 1919 Guide: Borrower Information Form For SBA – This form is used for all SBA 7(a) Loans. This is the actual SBA Form where you complete the borrower information.
SBA Form 912 Guide: Statement Of Personal History – The SBA requires this form to analyze and review your character and personal profile
SBA Form 413 Guide: Personal Financial Statement – The SBA requires this form so they can review your personal financial and credit background and where you stand with your current financial position
SBA Form 159 Guide: Fee Disclosure Form and Compensation Agreement – For many SBA borrowers who are using a commercial loan officer to help them secure an SBA Loan or any other commercial financing, the Fee Disclosure Form and Compensation Agreement needs to be completed: This is how your loan officer gets paid, and the commercial mortgage broker, who is your loan officer’s employer
Processing and Underwriting SBA Loans
Upon completing all necessary paperwork and submitting all of your documents to your loan officer/lender, your SBA Lender can now proceed with the processing and underwriting your SBA Loan. Most underwriting processes take no more than two weeks. It is leading up to the underwriting phase, which takes most of the work. An experienced commercial loan officer and commercial mortgage loan processor will not submit your SBA commercial mortgage loan application to underwriting if they doubt it will get approved.
What Are The Costs and Fees To Get SBA Loans
Commercial Loan Brokers are paid by the borrower at closing, unlike residential mortgage loan originators, who the lender pays. Commercial loan officers are agents representing the borrower, so whatever the fee agreement is, it is arranged and negotiated before the start of the commercial loan process.
Commercial loan officers will charge between 1.0% of the loan amount and 5.0% of the loan amount. The wholesale lender will compensate residential mortgage brokers through a yield spread premium disclosed on the Closing Disclosure or CD, which cannot be greater than 3.0% by law.
The mortgage broker company will get this yield spread premium or commission. The mortgage loan officer will take a percentage of the mortgage broker fees, and the rest will go to the mortgage broker himself, which owns the mortgage broker shop. Residential mortgage bankers are exempt from disclosing their comp plan.
What Is The Typical Timeline From Loan Submission To Closing on SBA Loans
The commercial mortgage loan process is much longer than the residential mortgage process. A typical Small Business Loan with the SBA will generally take 60 to 90 days from when all docs and paperwork are signed to the clear to close and closing of the SBA Loan. Here is the typical SBA Loan Process:
Pre-Qualification Stage of The Mortgage Process on SBA Loans
Pre-Qualification Stage: Preliminary phone interview. The borrower normally applies online, and the loan officer collects all necessary documents. Once the docs and all letters of explanation and credit are pulled, the loan disclosures are sent to the borrower for signature. Once the disclosures are signed and prepped, the loan broker and the company he or she represents prepare a letter of intent to proceed. All this is normally accomplished in seven days or less.
Letter of Intent and Proposal on SBA Loans
Proposal: Your loan officer will prepare a letter of intent, and the direct SBA Bank/Lender will state that you meet all of the criteria, and a deposit will be requested. A letter of intent is prepared and signed by both the lender and borrower with the intention of proceeding in processing, underwriting, and closing the SBA loan within the paraments on the terms specified mutually agreed by both sided.
How Long Does the Processing and Underwriting Process Take on SBA Loans
Processing and Underwriting: After reviewing the letter of intent to proceed and once you accept it and sign it, your mortgage file will then get submitted to processing. The mortgage processor will package up your file and get it ready to be assigned to a commercial mortgage underwriter. The underwriter will then decide whether your mortgage file has been approved. In most cases, an experienced loan officer and mortgage processor will not submit your file to underwriting if they doubt that your mortgage file will not get approved. This whole process will take less than two weeks.
What Happens After an SBA Loan Has Been Conditionally Approved
Conditional Approval: Once the mortgage underwriter sees that your file meets the SBA Lending Guidelines and feels confident that you are a good credit risk, the underwriter will issue you a conditional approval. The processor will then take charge and gather all of the conditions and submit it back to the mortgage underwriter for the underwriter to issue a clear to close.
Does a Clear To Close Mean The Same As Final Loan Approval on SBA Loans
Once a CTC, clear to close has been issued, the lender is ready to send docs and wire out, and the title company. Then takes charge of arranging the closing and figuring all the figures from both sides and prepares a final closing statement where the cash to close from the borrower will be provided.
How Long Does Closing Take on SBA Loans
At the closing table, the title changes hands, funds by the lender get wired into the title company, and keys are exchanged. If you would like more information on SBA Loans, please get in touch with us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays to take your calls and answer any questions you may have.
