C ontrary to popular belief, the SBA doesn’t lend money directly to small businesses. Instead, it works with lenders to provide small business loan opportunities to owners. The SBA helps entrepreneurs gain access to as much as $5.5 million in capital by reducing the risk for SBA-approved lenders. The SBA can do so by guarantying the loans on behalf of the business owners.

SBA-guaranteed loans can be used for a wide variety of business purposes, including operating capital and acquiring long-term fixed assets, such as machinery, equipment, real estate, construction, and remodeling.

Does Credit Score Matter?

While lenders use credit scores to assess risk and calculate interest rates, the SBA helps guarantee a small business loan that might not otherwise qualify. Eric Sawyer, the SBA Credit Analyst at State Bank of Southern Utah, said that with SBA financing, credit score does matter but it can be one of the reasons an small business loan is sought after. “An SBA loan is for people who wouldn’t qualify for conventional financing due to a credit or collateral deficiency,” he says.

“The bank provides the financing, but the SBA will guarantee that financing. It’s an incentive for the bank to provide financing to a borrower who has some sort of deficiency. We can support the small business and help them grow, and do it with less risk.”

What about collateral? “That’s one of the primary reasons for getting an SBA guarantee,” says Mr. Sawyer. “The business owner may not have collateral or sufficient collateral at all. According to the SBA’s Operating Manual, lack of collateral shouldn’t be a deterrent. But, they do require that all available collateral is taken. Whether it’s business assets or a house, it should be looked at.”

Preparing For An SBA Loan

Cecilia Mitchell, the Senior Vice President and Enterprise SBA Administrator at Zions Bank, says it’s important for small business owners to organize themselves before they apply. “Get your financial statements ready. Know what you need the money for: are you going to use the money for operations, or to buy something? That sort of information,” says Ms. Mitchell. “Bring three years of tax returns if you’ve been in business that long. If not, however long you’ve been in business. We have to verify those for SBA lending,” she says.

“At Zions [Bank] in Utah, we have a Business Resource Center, so if we have a company that’s brand new, that Business Resource Center is available to them before they go talk to their banker. We also work with the SBA’s Small Business Development Centers throughout the nation. They are a tremendous resource for businesses who are brand new or getting ready to expand, and they want to learn more about companies.”

Jim Herrin, the director of the Salt Lake Region Small Business Development Center (SBDC), said that an SBDC advisor could help small business owners determine how bankable their company is, so they aren’t applying for an SBA loan without help.

“We can help them put together a [small business] loan package because we understand what banks are looking for,” says Mr. Herrin. “We help business owners put together their information, especially their business plan and projections, so they’re reasonable. We make sure the business plan is concise and what the banks are looking for. We can also train them if they need to give presentations on their business.”

These SBDC services are complementary. Because the SBDC is a program of the SBA, it’s hosted (and partially funded) by colleges and universities throughout Utah. The SBDC also receives funding from the state and federal governments.

“Entrepreneurs may contact one of our SBA resource partners for individuals starting a business, counselors at our Small Business Development Centers, SCORE offices, or the Women’s Business Center will help with market research and preparation of a business plan,” says Christopher Stever, Deputy Director of the SBA Utah District Office. “Many of our counselors have years of experience in specific industries and can help new business owners become successful.”