Applying For An SBA Loan | Application Tips
How do you apply for an SBA loan?
Since the Great Financial Crisis started in the third quarter of 2008, small business owners have been squeezed with the performance of their business as they have been starved of access to credit. This starvation for credit would have been much greater were it not for the lending of the SBA through their different loan programs and the banks they support.
The SBA first came into being in 1953 or 60 years ago and according to its website, has delivered millions of loans, loan guarantees, contracts, counseling sessions, and other forms of assistance.
On Tuesday, February 12, 2013, Kelley Cheney from Plumas Bank was the guest on my radio show, Money 2.0 on 105.5FM. Kelley spent about 50 minutes with me providing some great information about the SBA, the different SBA loan programs, and his role as an SBA Business Development Officer at Plumas Bank.
Here are some of the questions and answers Kelley shared with me.
Very briefly, what’s Plumas Bank and the role you play there?
Plumas Bank is a community bank founded in 1980 and has about $450 million in assets. Its headquarters are in Quincy, CA which is in Plumas County, hence our name. Plumas Bank has 11 bank locations in Northern California including locations such as Redding, Truckee, Portola, and Alturas. The bank has a commercial loan center in Reno, NV, and a Small Business Lending Division in Auburn, CA.
See also: Choose the right SBA Lender
My role at Plumas Bank as a Business Development Officer is to work with clients who are looking for an SBA loan. This includes those that want to know if the business they are selling or buying would qualify for an SBA loan.
Read More information about being unable to pay an SBA loan.
What is SBA financing and how does it help small businesses?
The SBA is an independent agency of the Federal Government. Its main role is to help small businesses throughout the US obtain financing for various operational needs. The SBA does not lend money but rather provides guarantees to the banks that do the lending.
If a bank wishes to participate in the SBA guarantee they are required to follow a rigorous set of instructions the SBA outlines in a document called the Standard Operating Procedures or SOP. To give you an idea of the size of the SOP, it’s about two telephone pages thick so and comes with incredible rules and details.
The SBA portion of the loan guarantee to the bank is 75% so it helps a business reduce a large amount of their lending risk. For example, without the SBA guarantee, a bank will probably be unwilling to lend if there is a high Loan to Value, a lack of collateral or the down payment is not high enough
How is SBA financing different from any other financing?
The guidelines for SBA finance are quite different from conventional finance. The business borrowing the money must be organized for profit, located in the US, and meet the SBA small business definition which is less than $7 million in revenue if it’s in retail or less than 500 employees if it is in manufacturing.
Some examples of eligible businesses include restaurants, gas stations, hotels, professional practices such as doctors, dentists, CPAs, and other retail-based and manufacturing businesses.
Ineligible businesses include a business that passively invests in real estate such as real estate developers, landlords, or apartment complexes.
See also: Why getting a business loan is so difficult.
What types of SBA lending programs does Plumas Bank participate in?
Plumas Bank provides SBA loans in two programs. The first is the SBA 7(A) program which provides lending for fixtures, furniture, and equipment, inventory, debt refinances,s and tangible and intangible assets. The second is the SBA 504 program and this is lending for the borrower to purchase commercial real estate or heavy equipment.
Plumas Bank is a Preferred Lender or a Certified Lender which means it underwrites its loans and does not take them to the SBA for processing. This gives Plumas Bank more loan underwriting autonomy and a much quicker response to loan requests and processing.
What is a typical deal structure?
If the loan is for a business acquisition, the average loan amount is about $500,000 with the average down payment of 20% which means Plumas Bank would lend on average 80% of the loan amount.
If the loan is for commercial real estate, the maximum loan amount is $5 million with the borrower bringing a down payment of 10% to 15% and the maximum term of the loan of 25 years.
There were many other questions in my conversation with Kelley. If you would like to get more information about the SBA loan process by listening to our conversation, please click the following link – Kelley Cheney from Plumas Bank. If you are ready to make an application or find out more about the loan application process, give Kelley a call at (530) 870-1333.