How much can I qualify for? How long will it take? Why would I need to put up my home if the government is backing? By now you probably know the answers, but here you will the questions our finance team is most frequently asked about SBA Loans.
The Seven Most Frequently Asked Questions about SBA Loans
Congrats! You have made it to the final chapter of the Complete Guide to Everything You Need to Know about SBA Loans. Most of the information in this section should be a review of what you learned earlier, but feel free come back here for a quick refresh whenever you’d like.
How much can I qualify for?
This will depend on the type of business you are looking to open. As we discussed in Chapter 3, most banks will require at least 20% down for existing businesses or franchises and around 30% down for most startups. If you divide the amount of money you are willing to invest by the percentage down required, you will get a rough idea of how much you can qualify for, or you can try our prequal tool. Keep in mind, banks will want to be sure you still have significant cash reserves (think 3-6 months expenses) left over after your investment into the business, so you’ll want to factor that into your calculation.
How long will it take?
There are many factors that determine how long the SBA process takes. Business type (start up vs existing business), finding a location, lender underwriting time, are all factors that will play into the overall timeline. It is also heavily dependent upon your ability to complete the requirements and documentation for the bank. Most startups generally take 90-120 days and most existing businesses take around 90 days, but these timelines can be much faster or much slower dependent on the factors we called out above.
I read I only need 10% down (Floor, not maximum)
The SBA has a minimum down payment requirement of 10%, but this is a floor not a ceiling. Each bank will have their own internal guidelines for how much of the deal they are willing to finance, and therefore how much you will need to bring in as your down payment. While it is possible to put only 10% down, most lenders will require a more in order to mitigate their risk as discussed in Chapter 3.
Why would I need to put up my home if the government is backing?
In order to participate in the lending program, the SBA requires that banks underwrite the loans as if there was no government backing. This means they want the lenders to use the same collateral requirements on an SBA loan as they would a non-SBA loan. While it does provide the bank with extra security, the government backing from the SBA cannot be used as collateral.
Can I use my retirement funds as a down payment?
In most cases, the answer is yes! If you plan to use a Rollover for Business Startup (ROBS) as your Equity Injection, you will want to verify that the lender you are working with has a good understanding of the ROBS structure. Your ROBS provider can always help in this education process. If you don’t want to use ROBS, taking a distribution or potentially even a 401(k) loan may also be an option, though you will need to factor in taxes and debt repayment.
What is the minimum credit score for an SBA loan?
The SBA minimum is 640, but most lenders prefer to see credit scores closer to 690+. More so than just your score, lenders are interested in your credit history and current debt obligations. High amounts of credit card debt or recent late payments are items that lenders will factor into their lending decision. Previous bankruptcy, foreclosure, or short sales are also all items that lenders will want to be disclosed along with an explanation letter to help understand the circumstances.
Do I need a business plan for my SBA loan?
Yes, a business plan is one of the required documents for an SBA loan application. As we discussed in Chapter 3, a business plan is a great exercise for you as a business owner as well as the most helpful tool for a lender when evaluating your loan application.