For Business

Are You Financially Ready to Seek SBA Financing? Tips from First Bank of the Lake

First Bank of the Lake
First Bank of the Lake
Couple reviews finances with SBA logo on side

Are you thinking about taking your business to the next level? Do you need working capital, funds to expand or are you ready to purchase a commercial real estate property? By partnering with a trusted lender and leveraging the Small Business Administration (SBA) loan program, your next business move may be closer than you think.

SBA loan programs are a great option for many entrepreneurs, offering lower interest rates and longer repayment terms than traditional loans. However, to make the most of this opportunity, it’s crucial to be financially prepared. Here at First Bank of the Lake, we want to help you understand a few of the key factors that can influence your eligibility for SBA financing and set you on the path to success.

1: Improving Your Credit Score

Your credit score is one of the most important factors lenders consider when you apply for an SBA loan. A higher credit score not only improves your chances of approval but may also help you secure more favorable loan terms. Here are some steps to improve your credit score:

  • Pay Your Bills on Time: Consistently paying your bills by their due dates is one of the best ways to boost your credit score. Set up automatic payments or reminders if necessary.
  • Reduce Credit Card Balances: High credit card balances can negatively impact your credit score. Aim to keep your credit utilization ratio below 30% of your available credit limit.
  • Check for Errors: Regularly review your credit reports for any inaccuracies or fraudulent activities. Dispute any errors with the credit bureaus to have them corrected.
  • Avoid New Credit Inquiries: Each time you apply for new credit, it results in a hard inquiry on your report, which can slightly lower your score. Limit new credit applications while you’re preparing to apply for your SBA loan.
2: Understanding the Minimum Credit Requirements

While the SBA does not set a minimum credit score requirement, most lenders prefer to see a score of at least 640. However, having a score of 700 or higher can significantly increase your chances of approval. Here’s what you need to know about credit requirements:

  • Personal Credit Score: This score reflects your personal creditworthiness and is a critical factor in the loan approval process. Aim for a score of 680 or above to strengthen your application.
  • Business Credit Score: If you have an established business, lenders may also look at your business credit score. Ensure your business is paying its debts on time and maintaining healthy credit utilization.
3: Reducing Your Debt-to-Income Ratio

Your debt-to-income (DTI) ratio is another vital factor that lenders evaluate. This ratio compares your monthly debt payments to your gross monthly income. A lower DTI ratio indicates that you have a healthy balance between debt and income, making you a less risky borrower. Here are some strategies to reduce your DTI ratio:

  • Pay Down Existing Debts: Focus on paying off high-interest debts first. This can lower your monthly payments and reduce your overall debt burden.
  • Increase Your Income: Explore ways to increase your business revenue or personal income. This might include taking on additional clients, increasing sales, or cutting unnecessary expenses.
  • Avoid Taking on New Debt: Minimize new debt while you’re working to improve your DTI ratio. This will help you maintain a stable financial position.

Final Thoughts

When preparing to seek financing for your business, it’s recommended to perform a thorough review of your personal and business financials and identify any areas to improve your financial health. By focusing on improving your credit score, understanding minimum credit requirements, and reducing your debt-to-income ratio, you’ll be in a strong position to apply for SBA financing and take your business to new heights.

At First Bank of the Lake, we are committed to supporting small business owners on their journey to success. If you have any questions or need assistance with the SBA loan application process, don’t hesitate to reach out to our experienced team. Together, we can help you achieve your financial goals and grow your business. We're here to help you every step of the way!