The arduous SBA loan process

11/1/2011

An SBA loan can help a small business grow and expand - but how does one actually go about getting an SBA loan?

According to Inc. Magazine, a company must first be turned down for a traditional loan.

Under federal law, a business must seek out a traditional loan from a financial institution as an initial step toward getting an SBA loan, because the administration can't guarantee a loan to a company that has the ability to obtain the money it needs without assistance. If the lender decides that it can't make a conventional commitment, then an SBA loan can be considered.

"You will not directly secure the loan from the SBA," Jim Anderson, a management counselor for nonprofit Orange County SCORE, told the news source. "The SBA makes loans available through participating vendors and provides a government guarantee to the lenders."

Anderson adds that some lenders are designated as "preferred," meaning they do their own underwriting to determine borrower criteria, the Business Courier reports.

Typical reasons for not meeting the standards for a conventional loan can include a lack of collateral or an inability to prove that the company can repay the loan. This can be attributed to a poor stretch of recent business or because the company is newer and lacks much financial history.