How to Get an SBA Loan in 2024
How to Get an SBA Loan in 2024: A Step-by-Step Guide
Congratulations! You’ve found the business you want to buy. Now, it’s time to secure financing—arguably one of the most important steps in your entrepreneurial journey. If you’re considering an SBA (Small Business Administration) loan, here’s what you need to know to increase your chances of success.
1. What SBA Lenders Will Ask for
When you approach an SBA lender, they’ll look at your personal and business financials. On the personal side, they’ll require:
Your last 3 years of personal tax returns.
A Personal Financial Statement (PFS), which details your financial picture—cash in savings, checking accounts, retirement funds, real estate, assets, and liabilities.
Your credit score and credit history.
A resume to evaluate your professional experience.
Lenders want to see if you have experience that’s translatable to the business you’re buying. You don’t necessarily need to have worked in the same industry, but skills and knowledge that can help you operate the business are essential.
2. The Business's Financial Health
Lenders will also take a close look at the business you’re planning to buy. You’ll need to provide:
The last 3 years of the business's tax returns.
Profit and loss (P&L) statements and a balance sheet.
An overview of the business, including details about its customers, operations, and your role as the new owner.
Tax returns are critical here, as SBA lenders base their underwriting primarily on them. The lender will conduct a cash flow analysis to determine whether the business generates enough income to cover debt payments. This is done by calculating the Debt Service Coverage Ratio (DSCR), which measures the business's ability to cover the loan’s debt payments based on its cash flow over the past three years.
3. SBA Term Sheet
Once your lender reviews your documents, they may issue a term sheet, outlining the loan's basic terms:
The amount they’ll loan you.
Working capital provisions (funds for day-to-day operations).
Closing costs and SBA guarantee fees.
The interest rate (usually Prime plus 2–3%).
The loan amortization period (typically 10 years if no real estate is involved).
Your monthly payments and any upfront deposit required to move forward (typically between $2,500 to $10,000 depending on the loan size).
SBA loans are often variable rate loans, meaning the interest rate will adjust quarterly based on the Prime rate.
4. The Underwriting Process
After accepting the term sheet and paying the deposit, you’ll enter the underwriting process. This involves a deep dive into your financials and the business deal. While it can feel exhaustive, underwriting is designed to ensure both you and the lender have confidence in the business’s ability to succeed.
The underwriting process typically takes 30–45 days for loans without real estate. Lenders want to ensure you have the financial ability to not only repay the loan but also cover personal expenses. If all goes well, you’ll receive a commitment letter, officially approving your loan.
5. Closing and Funding
Once you receive the commitment letter, you’ll need to prepare for the closing process by setting up your business entity (such as an LLC), an Employer Identification Number (EIN), and a business bank account. After the closing, the lender will issue the loan funds, and congratulations—you’ll officially own your new business!
Final Thoughts: Finding the Right Lender
Time is critical in any business acquisition. It’s essential to find the right lender early in the process to avoid delays. As an SBA loan brokerage, our role is to help first-time business buyers like you find the best lender for your deal and ensure you’re set up for success. Time kills deals, and having a lender who’s ready to move quickly can make all the difference.
If you’ve got a business in mind, reach out and see what SBA loan options are available to make your dream a reality!
