Your business loan application can make or break your chances of receiving a loan. How you present your business (and yourself) will either convince a lender that your business is a viable one that can repay the loan or dissuade the lender from approving your application. It is imperative that you are meticulous throughout the application process to increase your chances of being approved.

To get an SBA loan approved you must demonstrate a strong business plan, good personal and business credit and a clear ability to repay the loan. Provide detailed financial projections, comprehensive financial statements, tax returns, and legal documents. Highlighting your business's stability and growth potential is key to approval.

Keep in mind that the lender is trying to ensure that you and your business will be able to repay the loan, so all communication and documentation should support your efforts to prove that you can and will repay it in a timely manner. First, you will need to carefully organize your documents before you begin the application process.

What documents are needed for an SBA loan?

While the exact documents needed will vary from lender to lender, you should gather all your relevant financial documents and have them organized and ready. Typically, the following documents will be required—both business and personal.

1. Loan application:

   The application form will include a section in which you will discuss the purpose of your loan. Spell out exactly how much money you need and what the purpose for the money is. Be as specific as possible to justify the amount of money requested.

2. Business plan and/or financial projections:

   Depending on your financing needs you may be asked for a business plan or financial projections. A business plan is important to the lender when you’re starting a business and potentially when you’re expanding a business. This is where you convince the lender why you need the funds. Financial projections on the other hand are important for all businesses applying for financing to assess risk and show your ability to repay the loan.

Here are tips for developing a strong business plan:

• Your business plan needs to be well organized and clear. If your plan is confusing or difficult to understand, the lender will not have confidence in funding your business.
• Detail your business concept to clearly show your professional knowledge.
• Demonstrate that you have a true understanding of the market and your competition, as well as any legal and regulatory requirements.
• Include a detailed marketing and advertising plan.
  
  

Learn more about crafting a winning business plan in our article, A Business Plan Template for Entrepreneurs Like You, or download our Business Plan Template.

Here are tips for preparing strong financial projections:

• Set realistic sales projections and acknowledge risks.
• Provide detailed assumptions that support your sales projections. Such as seasonality, number of customers, average invoice amount, etc. 

3. Business documents:
   The lender will want to examine all aspects of the business financials to ensure that the business will be able to repay the loan. Here is a list of the most common business documents required to apply for an SBA loan:

• • The lender will typically require three years of business tax returns to see the history of the business’s financial performance.
  • To examine the current financial status of the business, the lender will also require the year-to-date (YTD) income statement and current balance sheet.
  • To compare the current performance to the last year, you will be asked to provide the comparable income statement and balance sheet from the previous year.
  • The lender will want to see financial projections for at least the first two years.

4. Collateral considerations:
   With an SBA loan the lender will expect to have first lien on all assets financed. Keep in mind that SBA loans are primarily cash-flow, not collateral based loans. However, based on your personal financial circumstances the lender may be required to place liens on personal assets, most often personally owned real estate. In the case that collateral is required:

• • The bank may need to verify the value with an appraisal or valuation report.
  • You may need to provide insurance documents including proof of insurance and details.

5. Personal documents:
   A lender will want to examine the business owner’s personal credit in addition to the business financials. In the lender’s eyes, the way a person manages personal credit is usually indicative of how that person will handle the business’s credit. Therefore, the lender will want to see personal documents for any proprietor, partner, or owner including:

• • Tax returns (typically three years’ worth)
  • Personal financial statement
  • Bank statements (typically for proof of equity)
  • Personal identification in the form of a government-issued identification for each proprietor, partner, or owner

How to Avoid Common SBA Loan Application Mistakes

There are several common mistakes to avoid on a loan application, as these can automatically disqualify you from receiving the loan. There are obvious reasons that could disqualify you such as not meeting the minimum credit score. Other challenges involve:

1. Failing to disclose past financial or legal issues:
• • Bankruptcy regardless of date
  • Felony or other serious legal charges
  • Current probation
  • Active divorce proceedings
  • Tax lien or delinquency
2. Failing to provide adequate financial documentation: This includes failing to submit all the required tax returns, profit and lost statements, and balance sheets—or submitting outdated or inaccurate versions of these documents.

SBA Loan Application Document Checklist

Here’s a quick reference checklist of typical documents required for an SBA loan application:

• Application forms: this is specific to the lender you are applying to and will vary from bank to bank
• Business information:
  • EIN number
  • Official business name
  • Names of owner(s)
  • Type of business
  • Business address
  • Phone number
• Business documents:
  • Business plan
  • Three years of business tax returns
  • Year-to-date (YTD) income statement and current balance sheet
  • Comparable income statement and balance sheet from previous year
  • Cash flow projections
• Personal information:
  • Birthdate
  • Social security number
  • Personal address
  • Personal email
  • Phone number
• Personal identification: government-issued photo ID for each proprietor, partner, or owner
• Personal documents:
  • Three years of tax returns
  • Personal financial statement

By submitting a carefully crafted loan application with solid financials and demonstrating your professional knowledge, you can convince a lender that your business is worthy of the loan. Ready for next steps? Learn more about what happens during the loan application process.

 Frequently Asked Questions About SBA Loan Applications

 Q: What is the most important factor for getting an SBA loan approved? 

A: To increase your chances of approval, cultivate a strong credit score, maintain meticulous financial records and display expert knowledge of your business with the ability to answer lender questions. It's crucial to clearly define the loan's purpose and present a viable repayment plan to convince lenders of your business's viability.

Q: What if my business is new and doesn't have three years of tax returns?

A: Lenders will likely focus more heavily on robust cash flow projections and profit and loss statements for newer businesses. Especially if the loan is for a business acquisition, where projections for the first two years under new ownership are crucial.

Q: How can I ensure my financial projections are considered "realistic" by lenders?

A: To make your financial projections realistic, ground them in a true understanding of your market, competition, any legal/regulatory requirements and the businesses past financial performance. Avoid overly optimistic sales forecasts and be prepared to justify your numbers with market data and detailed assumptions.

Q: What happens after I submit an SBA loan application?

A: Once all the necessary documentation is submitted, Live Oak Bank will send you a loan proposal or term sheet with the terms of the loan. After the proposal is accepted, you will move into the underwriting stage. When your loan is approved, you will receive a commitment letter with the terms and conditions of the loan. Once you provide your signature, you will move into closing, the final stage of the loan process. A closing specialist will prepare a closing checklist of all required documentation needed on your loan prior to closing and funding your loan.

Q: What else can I do to improve my chances of getting approved for an SBA loan?

A: Understanding your business and your plans for the business can be more important than the financials. The package doesn’t have to be perfect, but it should show your professional knowledge and historical performance. Additionally, meticulous document management is important. Be sure to put together a clean package with files that are clearly named and include all the information needed for that document.