The general requirements for an SBA Loan from a bank are relatively universal. Virtually every business owner knows you need to have a perfect credit score, high revenue, strong profitability, at least two years in business, and the ability to provide collateral. These requirements are basically common sense to anyone who has done just a little research on bank loans. A little more research, however, will suggest that numerous other factors can influence your chances of approval. Sometimes, applicants who possess one such factor are approved even if they don’t exactly fulfill one of the aforementioned requirements with flying colors.
Yes, you could just do a Google search of the types of businesses that have received the most SBA Loan approvals as of late. But do you think every single business in a given category was approved for the same reasons? Here are four, non-numerical factors that can influence your chances of being approved for an SBA Loan:
The stereotype that banks are biased towards certain industries is mostly true. If your industry is poised for massive growth and is often categorized as “recession-proof,” you may be able to do the impossible: Get approved for an SBA Loan to open a new business. Examples of such industries include alcohol (bars, liquor stores), real estate (broker agencies, management firms) and fitness centers (gyms, boutique studios). You may be surprised to see bars on this list because banks are notoriously ungenerous to restaurants, primarily due to their low profit margins and high risk of failure. But recent data gives the impression that banks are finally beginning to ease up on experienced restaurateurs with alcohol-centric business models.
Being recession-proof is arguably more important than growth potential if you are in a budding industry, like alternative medicine. Most banks will likely be hesitant to approve applications until projections have turned into real, proven growth, especially if you’re looking to open a new business or have a young business.
Every business lender is different. Just ask the countless small business loan applicants who were rejected by several banks only to approved by another one that didn’t seem too different from the others. Many local business financing institutions offer special programs for local entrepreneurs with young businesses. And if you live in or near a big city, there’s a good chance you will have quite a few local business financing institutions to choose from, some of which may be non-profit. These institutions may have looser requirements, like time in business.
Another thing that may make you more likely to be approved by a certain business lender is personal involvement with your industry. This refers to loan officers who have some sort of personal ties (family, friends, themselves) to a business similar to your own. A boutique fitness studio, for example, may be more likely to be approved by a local bank with several fitness enthusiasts on its staff.
This applies to bank loans in general. Most banks believe that if the applicant has personally financed his or her business, that person is significantly less likely to let the business fail. It’s safe to say at least a decent amount of restaurants that were approved for SBA Loans were personally financed by their owners at some point. Banks are also understandably biased towards businesses that were initially bootstrapped, or started with no external funding. If you have a young business, your chances of being approved are much greater if you have used your own money to finance your business.
Patience is crucial for any business-related endeavor. But SBA Loans require a different kind of patience. It begins with the application and requirements, which vary from lender to lender. Gathering financial documents may be easy for a young business but businesses that have been open for several decades might be understandably reluctant to weed through all of their files.
Many borrowers also had to meet with a number of banks before being approved. Some were rejected by every bank they visited and were told to come back in about a year to show their improved finances. And once your application is filed, it could take at least three months to be approved and receive funding. The bottom line is that if you are seriously interested in pursuing an SBA Loan, be prepared to have your patience tested.
Though SBA Loans are traditionally associated with banks (and only banks), they are not the only source of SBA Loans. At United Capital Source, we offer special SBA “Marketplace” Loans that carry the same borrowing amounts and terms as conventional SBA Loans but are much easier to qualify for. You can get funded in under a week and unlike conventional SBA Loans, our terms can be adjusted for uncontrollable circumstances. If banks could do this, they wouldn’t have to face an unfortunate reality with their SBA Loan clients: Even the most qualified borrowers are sometimes unable to pay them back on time!
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