Understanding the 504 SBA Loan Approval Process

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One of the most important considerations when taking out a loan is the length of the approval period. The SBA loan approval process takes two to three months with most lenders. The procedure necessitates patience, as potential borrowers must complete several forms and undergo verification which we will discuss today.

SBA 504 Loan Approval Time

Most often, SBA 504 loans, originate with a bank or credit union which we refer to as the Third-Party Lender or TPL. The TPL will go through the internal approval process just like with any non-SBA loan and work in conjunction with the Certified Development Company (CDC) to share necessary paperwork like tax returns, personal financial statements, appraisals, environmental reports, etc. The process for approval at TPLs varies based on the institution but also the size and type of project being financed.
In the best case scenario, the TPL has involved the CDC Loan Officer or Business Development Officer prior to the internal approval. The CDC must collect several documents in addition to what the TPL provides to prepare an internal credit writeup and then gain approval internally before sending it to the SBA for final approval. Typical turn-around time at the SBA can be anywhere from a few days to a month. On rare occasions, the SBA may take longer than a month, but those instances are due to the complexity of the project or challenges with some of the required paperwork or features of the project. The CDC is responsible for communicating and gaining the SBA approval. Experienced CDCs, like Michigan Certified Development Corporation, have gained the knowledge and reputation within the SBA loan processing center to be able to anticipate the questions that will arise and answer them within the credit writeup to condense the turn-time.

Documents for SBA Loan Application Process

Here are some of the basic documents you will need to get a 504 SBA loan approval:

Financial information: Personal financial statement, personal tax returns, business tax returns (if an existing business), interim balance sheet and income statement, a debt schedule (that matches the interim balance sheet), and cash flow statements should all be included to illustrate your financial capacity.

Cost documents (purchase agreement or construction estimates) are required to establish the total project costs. The TPL will order and provide the appraisal, while most will order an environmental report as required.

Business Plan: Your lender, the CDC, and the SBA will want to see evidence of the viability of your concept if your business is a startup or if the financing will be for a significant expansion that historical financial performance does not support. The projections will need to be provided for the first two years post-project (after construction/expansion or equipment purchase/installation, depending on the project) and broken out monthly for the first year. Most importantly, the SBA requires a listing of the assumptions utilized in preparing the projections to verify the projections are credible and attainable.
Always consider the timing of the financing you are applying for. If your business’ need for a 504 SBA loan is urgent engaging the CDC early in the process to work with your financial institution may help eliminate some rework and take some time out of the process. Reach out to Michigan Certified Development Corp. today if you are in need of a 504 SBA loan.