Tyler Grimm, Seaside Business Advisors
Friday, October 25, 2024 · 4 minute read
The Seaside Advantage
Looking to turn your business dream into reality? At Seaside Business Advisors, we specialize in helping entrepreneurs like you secure the funding you need to purchase a business of interest.
With our expertise in SBA 7(a) loans, we’ll guide you through the entire process—helping you transform your vision into owning a thriving company.
Why Choose Seaside Business Advisors?
Navigating the SBA loan process can be daunting. That’s where we come in. Our team makes the process simple, providing tailored guidance to meet your business needs. Here’s how we help:
Step-by-Step SBA 7(a) Loan Guidance
- Personalized Consultation: We start by assessing your unique business plan and financial needs to determine if an SBA 7(a) loan is right for you.
- Document Preparation: Don’t worry about the paperwork—we’ll help you gather everything you need, from your business plan and financial projections to personal financial statements.
- Lender Match: With our network of SBA-approved lenders, we connect you with the best lending partners to maximize your chances of approval.
- Expert Application Support: Our team will assist you every step of the way, ensuring your application is polished and ready for review.
- Loan Approval and Closing: Once approved, we make sure the loan closing is smooth and quick, so you can focus on launching your business.
Why an SBA 7(a) Loan?
- Flexible Loan Amounts: Borrow up to $5 million to cover everything from working capital to real estate purchases.
- Competitive Rates: Enjoy lower interest rates and longer repayment terms than standard loans.
- Startup-Friendly: Even as a new business, you can qualify with the right planning and preparation.
A More Detailed View Into The Loan Process
The SBA 7(a) loan program is one of the most popular financing options for small businesses in the U.S., supporting the initial purchase of a businesses, to startup capital and capital to expand.
Backed by the Small Business Administration (SBA), it offers government guarantees to lenders, reducing their risk. Here's a detailed breakdown of the process to apply for and get an SBA 7(a) loan to start your business:
1. Understand SBA 7(a) Loan Eligibility Requirements
Before applying for an SBA 7(a) loan, you must ensure that you meet the eligibility requirements set by the SBA. Here are the key criteria:
- Business type: Your business must be a for-profit entity based in the U.S. Some industries, like real estate speculation, lending, and gambling, are ineligible.
- Size requirements: Your target business must qualify as a "small business" as defined by the SBA, based on revenue or number of employees. Different industries have varying thresholds.
- Owner investment: Lenders want to see you have a personal financial stake in the success of your business. Often personal and business assets are used as collateral to secure the loan.
- Creditworthiness: A strong personal and business credit score is vital. Most lenders look for personal credit scores above 680.
- Business plan: You need to present a detailed business plan and or model that demonstrates the feasibility of the business and your ability to repay the loan.
2. Prepare Required Documents and Information
You’ll need to gather various documents to demonstrate your ability to run a business and repay the loan. These documents will be reviewed by the lender and the SBA. Here's what you’ll need:
- Personal financial statement: Details of your assets, liabilities, income, and credit history.
- Business financials: Financial details including three years tax returns, internal P&L statements and future projections (profit and loss, balance sheet, cash flow statements, etc.).
- Business plan: A comprehensive business plan detailing your business model, market analysis, marketing strategy, financial projections, and management structure. This should include how much money you’re asking for and how it will be used. A significant amount of this detail can generally be found in the CIM presented with the business listing.
- Resumes of business owners: Show your professional background and relevant experience in the industry.
- Personal tax returns: Typically, you need three years of personal tax returns.
- Other relevant documents: This could include legal contracts, licenses, permits, or lease agreements.
3. Determine the Loan Amount and Purpose
You’ll need to calculate exactly how much funding you require to acquire and run your business at purchase. The maximum SBA 7(a) loan amount is $5 million, but you should carefully estimate how much you need based on:
- Purchase price
- Down payment on loan
- Potential for Seller carry
- Working capital requirements
- Startup costs (equipment, inventory, supplies, etc.)
- Real estate, if applicable (e.g., buying property for your business)
- Debt refinancing, if any
- Expansion, if relevant
The SBA guarantees up to 85% of loans under $150,000 and 75% of loans over $150,000.
4. Find an SBA-Approved Lender
The SBA does not lend money directly to individuals or businesses. Instead, it works with lending partners (banks, credit unions, and other financial institutions) that have been approved by the SBA to provide 7(a) loans. Here's how to find the right lender:
- Seaside Lender Match: We will suggest Lenders based on your needs and pair you with a trusted Lender within the SBAs Preferred Lender Program.
- SBA’s Lender Match Tool: Use the SBA’s online tool to connect with lenders that are familiar with SBA loans.
- Community banks or credit unions: Many local banks or credit unions offer SBA loans and are willing to work with startups, especially if they focus on small businesses.
5. Apply for the Loan
Once you have chosen a lender, the application process begins. Here’s what to expect:
- Loan application form (SBA Form 1919 or 413): This form collects information about you, the business, and the loan request. The lender will also use it to perform background checks.
- Submit documents: You’ll submit your business plan, financial projections, and other documents to the lender. The more comprehensive your submission, the smoother the process.
- Lender review and underwriting: The lender will review your application, checking your creditworthiness, the viability of the business, and your ability to repay the loan. This process can take anywhere from a few weeks to several months depending on the lender and the complexity of the loan.
- SBA review (if applicable): For certain SBA 7(a) loans, the lender will submit your application to the SBA for a final review. For other loans, especially those under the Preferred Lenders Program (PLP), the lender can approve the loan without sending it to the SBA for additional approval.
6. Wait for Loan Approval
Once the underwriting process is complete, the lender will either approve or deny your loan request. Here’s what could happen next:
- Approval: If the loan is approved, the lender will issue a commitment letter detailing the loan terms, including the loan amount, interest rate, repayment schedule, and any collateral requirements.
- Denial: If the loan is denied, the lender should explain why. It could be due to insufficient credit, a weak business plan, or other factors. You can request feedback and consider reapplying after addressing the issues.
7. Loan Closing
If approved, the loan will proceed to closing. During this step:
- Sign the loan agreement: This includes agreeing to the terms of the loan.
- Collateral: If required, you may need to provide collateral (real estate, equipment, or other assets) to secure the loan. Personal guarantees are also often required, meaning you’re personally liable if the business defaults.
- Funds disbursement: After the closing documents are signed, the lender will disburse the loan funds to you or directly to the parties involved in the acquisition.
8. Repayment of the Loan
Once you’ve received the loan, you must start repaying it according to the agreed-upon schedule. SBA 7(a) loans typically have flexible repayment terms based on how the funds are used:
- Business acquisition loans: Repayment terms are generally 7 to 10 years.
- Working capital loans: Repayment terms are generally up to 7 years.
- Equipment loans: Repayment terms can go up to 10 years.
- Real estate loans: Repayment terms can be as long as 25 years.
Interest rates are typically prime rate plus a margin (based on your credit profile, loan size, and term). SBA loan rates are often lower than standard business loan rates because of the SBA guarantee.
Key Tips for Success:
- Be thorough in your business plan: The lender wants to see that you’ve thought through every aspect of your business. Include detailed market research, competitive analysis, and strong financial projections.
- Improve your credit: If your credit score is borderline, take time to improve it before applying.
- Choose the right lender: Not all lenders are equally experienced with SBA loans. Let us introduce you to a preferred SBA Lender, specializing in your type of loan and industry.
Timeline Overview (Example):
- Preparation (1-2 months): Gather documents, write business plan, and build credit.
- Lender Selection (1-2 weeks): Choose a bank or lender experienced with SBA loans.
- Application Review & Underwriting (3-8 weeks): The lender reviews your application and the SBA may need to sign off.
- Approval & Closing (1-2 weeks): If approved, you'll sign the agreement and receive funds.
With Seaside Business Advisors on your side, you don’t have to face the SBA loan process alone. We’ve worked with countless entrepreneurs to get the funding needed to support successful acquisition of businesses and we’re ready to help you too.
From locating the right business for you, loan application to approval, we’re dedicated to making your business success a reality.
For more information, please contact us at info@seasidebusinessadvisors.com
Tyler T. Grimm
Managing Partner
Seaside Business Advisors, LLC