How Do You Apply For A Business Loan
When you apply for small business financing, it’s important to understand what information small business lenders need from you so you can gather the appropriate documents. Typically, you will need these documents:
- Up to three years of financial statements or tax returns
- At least three months of bank statements
- Accounts receivable reports
- Proof of ownership
Your credit score and history will be taken into consideration, so it’s helpful to have good credit, which usually means a score in the range of 690 to 850. Scores below 689 are considered fair credit, and those below 300 are considered bad credit.
Cash flow is another important factor for business lenders, because they want to ensure you have enough revenue and sales to pay them back. Your debt-to-income ratio is also vital the more debt you have, the more difficult it will be to get approved. For new small business loans, lenders prefer a 1.35 debt-to-income ratio.
Lenders want to see that you have a strong business plan and blueprint for continuous profit, showing them that you can repay the loan. This is especially important if your new business doesn’t yet have steady cash flow.
Some lenders will request collateral. As mentioned above, collateral can take many forms property, vehicles, stocks or any asset of value but you must understand that if you fail to repay the loan, the lender will keep the assets you pledged.
Sba 504 Loan Down Payment
What is an SBA 504 loan?
A 504 loan, which is eligible for real estate purchases, is designed to give the business owner a chance to hold onto as much-coveted working capital as possible. The structure of the loan is as follows:
- 50% of the project cost is provided by a bank or credit union.
- 40% of the project cost is financed via an SBA-approved Certified Development Company , which submits the loan package to the government agency. CDCs are nonprofit organizations that support economic activity in a community with loans
- 10% of the projects total cost is shouldered by the borrower, including renovations and soft costs.
SBA 504 down payment requirements
While most business owners can expect to provide 10%, the down payment percentage for an SBA 504 loan isnt set in stone. For instance, the city or state of your business location may agree to provide a small percentage of the financing via a subordinate position. They might be inclined to do so if theyre looking to draw new businesses to the area. In this case, your SBA loan down payment requirement could be lower.
On the flip side, startups with fewer than two years of operating history must have a down payment of 15% of the loan size. The down payment amount increases to 20% of the size of the loan for particular use companies. The SBAs small business loan down payment requirement is generally lower than that of traditional banks, which can require anywhere from 20-30% of the purchase price.
Typical Down Payment Amounts By Loan Type
Whether a loan requires a down payment is based on a number of factors, including the type of loan selected. For some loans, a down payment is always required but may vary based on the borrowers profile and other considerations, such as the loan amount. For other loans, a down payment may not be required at all.
Learn more about down payment requirements for each type of loan below.
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Failure To Seek Expert Advice
When you apply for a business loan, lenders want to see that you’ve sought guidance from knowledgeable advisors.
Accountants can be an important source of advice for small business owners, according to Stephen Sheinbaum, CEO of Circadian Funding, which helps small and midsize businesses obtain working capital. He has collaborated with the CPAdirectory in the past.
“But there are many other places to find good people to talk to, such as the Service Corps of Retired Executives , a free mentoring service that is supported by the Small Business Administration,” he said. SCORE connects you to retired businesspeople with experience in your market. “This is important because they will know about the kind of capital that is most important to people within your industry.”
Sheinbaum also recommends that business owners get financial advice from business networking groups and conduct research on the websites of the leading alternative funders, since many have detailed resource sections for small businesses about the many kinds of available capital and the best ways to prepare for funding.
Sba Loans For Established Businesses
Benefit from easier qualification, longer terms and lower down payments on fixed assets than most standard loans.
You own a for-profit business that does not generally qualify for conventional credit.
- You own and operate a for-profit business
- Your business is legally organized as a sole proprietorship, corporation, partnership or LLC
- Your business does not generally qualify for conventional credit
Get a 1.99% interest rate for the first 6 months on qualifying Small Business conventional and SBA secured term loans. Loans from $100,000. Apply by September 30, 2021 and close by January 31, 2022.
- Get a 1.99% interest rate for the first 6 months on qualifying Small Business conventional and SBA secured term loans. Loans from $100,000. Apply by September 30, 2021 and close by January 31, 2022.
Benefit from no upfront fees on secured loans plus no appraisal fees on your commercial real estate secured loan
- Benefit from no upfront fees on secured loans plus no appraisal fees on your commercial real estate secured loan
- Qualifying loans starting at $100,000. Exclusions apply
Take advantage of a 25% discount on loan administration or origination fees.Offer valid for veterans of the U.S. Armed Forces on new credit facility applications submitted in Small Business.
- Take advantage of a 25% discount on loan administration or origination fees.
- Offer valid for veterans of the U.S. Armed Forces on new credit facility applications submitted in Small Business.
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It Means No Upfront Payment No Deposit
When you take $0 down payment loan, it means that you are not making any up-front payment when you are buying any business equipment. In other words, you are not bringing any cash savings to the table. You dont pay any portion of money, but you borrow 100%.
Zero down payment offers to give you an opportunity to take business equipment loan even if you dont have any cash savings. The only downside of this offer is that you will end up paying more in the end. But what is the need of avoiding paying more and remaining stuck for decades or for the rest of your life. You would rather pay more if it will help you in the end.
For a lender to lend you money without you making any down payment, you must have an excellent credit rating. A high credit score is a guarantee that you are a responsible person. The credit score number can speak on your behalf when you are seeking such loan. If you are planning to start or expand a business and you dont think you can be able to save sizable money to pay as a down payment, then start building your credit score today.
Preparing For A Commercial Mortgage
Whether your commercial real estate loan down payment is the 10 percent required by the SBA or the 20 to 30 percent required for a traditional bank loan, you’ll increase your odds of securing financing if you do your homework and make a strong presentation.
It helps to develop a working relationship with a banker so that even if you’re not ready to buy commercial real estate at the moment, you can make it part of your long-term planning. A business banker can advise you about how to build your business to qualify for financing down the line, and seeing you evolve as an entrepreneur may encourage that lender to go to bat for you once you do apply for a loan.
Prepare a business plan to submit with your commercial loan application. Your business plan should tell your company’s story and also project how your narrative will play out over time, especially once you make your commercial real estate investment. Include your bio and experience and also bios for managers or key employees. Also prepare a detailed marketing plan and a thoughtful set of financials.
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Of Note: No Financial Covenants
Keep in mind that 7a loans rarely have the types of “financial covenants” that haunted businesses a few years ago, so if the economy hits another recession and property values were to drop it would be highly unusual for you to lose your property because you no longer have enough equity as long as you make your payments.
Unfortunately, this happened to many businesses with conventional loans during the Great Recession. Businesses who were making their payments on time still lost their buildings because their banks needed them to have more equity to satisfy regulators and called their loans due.
This would be unusual with an SBA loan as it is extremely rare for a bank or lender to impose covenants related to cash flow coverage and other financial ratios once the loan is closed. The key issue is that you make your payments on time.
Please contact us at 1-800-414-5285 if you need more information re: qualifying, eligibility under the new guidelines or timing for approval with the SBA 7a Loan.
Other Business Loan Costs
Your business loan down payment for real estate requires you to have ready cash, but it isn’t the only major expense you’ll encounter during the process. You’ll need to have your building inspected to meet the bank’s requirements and also as insurance against making an investment that needs urgent repairs and upgrades.
You’ll also have to pay earnest money and fund the environmental inspections required by the Environmental Protection Agency. It’s also good practice to hire an attorney to go over your documents before closing.
Do your homework and plan for all of these extra expenses, which can rear their ugly heads at a time when you’re already feeling desperately strapped for cash. Including them in your financial projections shows the bank that you’re thorough and proactive. Planning and strategizing about how to have the necessary funds available will also make things run more smoothly and preempt unnecessary last-minute headaches.
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Failure To Shop Around
Finding a lender can feel so daunting that it might be tempting to sign up with the first one that comes along. But blindly pursuing one loan provider without exploring your other options is a mistake. Take the time to research a variety of traditional and alternative lenders to find the best fit for your business.
Financial institutions in the community where you plan to do business are an ideal place to start looking for a business loan, according to Logan Allec, a CPA and founder of the personal finance site Money Done Right. “Start with a community bank or credit union that is more invested locally, as they may have certain programs to be able to work with new local businesses.”
The SBA also provides federal backing for some businesses to receive loans through partner financial institutions. “This can be an excellent avenue to explore if you are having trouble finding a traditional lender for your business,” Allec said.
Other alternatives to traditional lenders are online lending platforms, peer-to-peer lending sites, and your own network of friends and relatives. If you pursue this last option, Allec suggests working up an official, notarized agreement to avoid any misunderstandings or conflicts down the road between all the involved parties.
When shopping around, you can also request that each lender help you calculate the annual percentage rate of their loan offer.
The Huntington National Bank
Huntington is the #1 lender nationwide for SBA loans in terms of number of loans made. It makes 7, SBA Express and 504 loans. Its primary focus is in its SBA footprint states of OH, MI, IN, WV, PA, KY, IL, WI, and FL and it is expanding into MN and TN in 2020. Huntington also offer SBA Practice Finance Loans in all states east of the Mississippi for dental, veterinary and medical customers. It has dedicated teams who specialize in the intricacies of SBA programs and all customers follow an identical triage process to be placed in the best product for them based on where they are in their business lifecycle, making Huntington a good choice for borrowers looking for an experienced SBA lender.
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Surround Yourself With Experts
Hipson says that when it comes to buying business, the more you know, the better. She adds that its important to talk to a trusted banker, financial advisor or consultant as soon as you start thinking about buying a business. They can help you sort through the options, make key connections and ensure youve thought out various scenarios.
If you dont talk to someone, you wont know what options you have, she says.
Buying A Commercial Building: Fees To Be Aware Of
When applying for a loan, be aware that costs will accumulate outside the mortgage amount. Acquiring a property will include legal fees, survey charges, application fees, and appraisal charges.
Legal fees include attorney fees, research fees, title searches, and potential court filings. A legal aspect is needed for the loan process for services related to closing and inspecting the property.
A property appraisal or property valuation, which is used to determine the general market value of the property and is conducted by a property appraiser, is a requirement when looking for a commercial mortgage. The cost is dependent on the size of the property, and the charge can rise depending on the type of property as well.
A property condition assessment is required, which is typically done by an engineering firm. This assessment will look at things like obvious compliance with building code obligations and environmental issues, starting with a simple record search and can become more involved if the search indicates that is required.
Application fees are standard and will be a predetermined amount, although any changes made to the loan can cause an increase in these fees.
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% Financing For Business Acquisition/expansion Of An Existing Business
As mentioned above, it is also possible with some lenders to use the SBA 7a loan program to purchase another business as an expansion of your existing business with no down payment as long as you are buying a business just like yours. This option is a good fit for insurance agencies, daycares, preschools, independent and franchised restaurant chains, auto repair businesses and many others who want to conserve their cash.
When More Than 10% Is Required
It is important to understand the SBA loan down payment requirements vary from lender to lender depending on the transaction and it should also be noted that an SBA lender may want more than 10% down payment depending on all of the factors involved or if there is something about the transaction that is not right in line with their guidelines.
As an example, many SBA lenders have a minimum SBA down payment requirement of 20% for hotels regardless of your experience, but there are some lenders who will allow just 10% down if you have enough current management and/or ownership experience.
What Is A Good Down Payment For A Car
An ideal down payment on a new car is 20%, or 10% on a used car. Any amount of down payment on a car will help protect your investment and lower your monthly payments and loan costs. Having a large down payment also helps ensure that you have equity in your car, so it is worth more than the amount you owe on it.
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How Much Of A Down Payment Do I Need For An Sba Loan
If you have a mortgage, then down payments are nothing new to you. The SBA down payment requirements are not that different. Essentially, the agency requires borrowers to put down a percentage of the purchase price. Consider that the lender is the one taking on the risk, and the SBA is backing much of the loan. The SBA loan down payment percent provides them with another layer of evidence in addition to your and the health of your balance sheet that you are likely to repay the loan as agreed.
Buying A Commercial Building: Residential Vs Commercial Mortgages
Most people are fairly familiar with residential mortgages and will have an understanding of how they are commonly structured, so to better understand commercial mortgages it helps to compare them to residential mortgages.
Residential mortgages are given based on the financial standings of the individual looking to acquire the loan. This differs from commercial mortgages as they are given based on the financial standings of the company.
That means greater risk is taken by the lender, which is then offset by making stricter terms and conditions. Here are a few key differences you find when comparing the financial structure of residential and commercial mortgages.
A few factors call for a penalty to be put on a mortgage. This includes a prepayment penalty if youre selling your home before youve reached the end of your term, transferring it to another lender, or if you refinance your mortgage.
Commercial mortgage penalties also have a prepayment penalty as well as a lockout period, which prevents the mortgage from being paid off until the lockout period has passed. Prepayment penalties are calculated by multiplying the remaining principal with the loan’s stated penalty rate.
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