Applying for an SBA Loan vs. Funding From an Alternative Online Lender

Business.com / Funding / Last Modified: February 22, 2017

What are the different requirements for applying for different types of loans? This article breaks them down with a handy checklist.

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Getting a business loan of any kind requires some planning.

By gathering the required information and documents ahead of time, the whole process can go easier, so we designed a free, downloadable checklist to navigate the process.

Start by doing a little research on the kinds of documents required for all different kinds of business loans and carefully consider the options.

You can apply for a loan directly from the federal government through the SBA, or Small Business Administration. Traditional banks and alternative online lenders are also great options. Alternative online lenders, due to speed and the ease of their application process, are becoming increasingly more popular.

Related Article: The SBSS Score Explained: What It Is & Why It Matters When Applying for a Loan

The SBA provides a useful guide with an overview of what to expect when you embark on the business loan application process. Keep in mind that the process of applying for a loan through the SBA is much more involved than that of an alternative online lender. Make sure to understand all of your loan options before investing days or weeks gathering documents for a loan application. 

SBA 7(a) Loan Application Tips

If you decide to apply for a SBA 7a loan through the bank, which is one of the most common SBA loan programs, plan for about 25 hours of preparation. Make sure to have all required documents available and begin by filling out the SBA Loan Application form 1919.

Next, check business and personal credit scores before you get too deep into the loan application process.

“Most entrepreneurs don't realize that if they apply for an SBA 7(a) loan for $350,000 or less, their business and personal credit will be prescreened to calculate a FICO LiquidCredit SBSS small business score,” writes Gerri Detweiler, Head of Market Education at Nav.com, in an email to Business.com. This credit score ranges from 0 - 300 and a minimum score of 140 is required to pass the SBA prescreen.

“Just as it's a good idea to review your personal credit scores before you apply for a mortgage or car loan,” explains Detweiler, “it's a good idea to check your FICO SBSS score before you apply for an SBA loan. If it's not strong enough, it’s advisable to work on building better credit before you apply.” 

CUSTOM IMAGE: Desk with lots of papers, some reading “Bank Statement”, “Business Plan,” “Projected Income,” calculator, receipts, etc.

Gather Your Documents for the SBA

The SBA has a lengthy checklist of required documents.

Be ready to provide personal background and financial statements, including a statement of Personal History, or SBA Form 912, and Personal Financial Statement: SBA Form 413. You’ll need to write up a business overview and history, in which you explain the story of your business and its challenges, with an explanation of why the SBA loan is needed and how it will help the business grow.

Next, it’s time to prepare and include your business financial statements. The first of these is a Profit and Loss (P&L) Statement current within 90 days of your application, as well as supplementary schedules from the last three fiscal years.

Projected financial statements are also necessary when applying for a loan through the Small Business Administration. This consists of a one-year projection of income and finances. As an applicant, you must attach a written explanation as to how you plan to reach your revenue projections. Your loan application history is also relevant to the SBA, so you should include records of loans you applied for in the past.

Related Article: What Should New Business Owners Expect When Requesting a Bank Loan?

You’re Not Done…

Round up a few more key details before you submit your SBA loan application, including a list of names and addresses of any business subsidiaries and affiliates. Provide resumes for all the business principals, as well as income tax returns.

Next, include signed personal and business federal income tax returns of your business’ principals for the previous three years. You’ll need to provide your business certificate or license as well. If your business is a corporation, stamp your corporate seal on the SBA loan application form.

Finally, include a copy of your business lease, or note from your landlord giving terms of proposed lease.

Because this is a rather lengthy and involved process, it’s best not to try to tackle it all in a day or two. Work on one piece of the SBA 7(a) application checklist at a time. Enlist the help of your bookkeeper or accountant. Pay attention to details and don’t try to rush it. The SBA is trying to make the process easier these days with SBA Express and SBA Linc, so spend some time familiarizing yourself with these new streamlined options before you begin.

Custom Image of Clean Desk with only Bank Statement, Proof of Income, ID card

Alternative Online Lender Application Requirements

If you need a fresh infusion of capital for your business, applying for a loan through an alternative online lender is another option. It’s quite different than applying for an SBA loan: It’s much faster. Generally, only three or four documents are required, and the whole process takes minutes instead of days. It’s possible to get your funding in under 24 hours.

Bianca Crouse is a Small Business Loan Reviewer at Merchant Maverick, a website that reviews services used by small businesses.

“A lot of business owners don't have the time or the option of going through the SBA application process, either because they do not meet the basic requirements to get an SBA loan due to poor credit, no collateral, et cetera, or they don't have the time to invest in a two- or three-month long application process,” she writes in an email to Business.com.

“Many businesses have been turning to alternate sources of lending such as merchant cash advances and online business loans, which often have much shorter application processes,” explains Crouse. “Often, all they need for an application is proof of identity, like a social security number and driver's license, and information about the business's cash flow from the past few months.”

Here’s what you’ll need in terms of documents should you choose to go with an alternative lender such as LoanMe:

  1. Bank statement (2 months of recent statements)
  2. Voided check
  3. Proof of valid ID showing you are over 18 years of age

Because only three documents are required, it is possible to complete the online application and upload required documents in as fast as five minutes.

Related Article: Before the Business Loan: Questions That Must Be Asked

Before you begin, it is a good idea to compare APRs, or annual percentage rates, among alternative lenders. Free calculators can help you, and our template below is the perfect reference tool. Download it below for free!

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