Getting approved for an SBA startup loan when you have low revenue numbers and limited collateral is a matter of reducing your risk as a borrower by making personal guarantees, showing that your company has revenue that is about to come in, and proving that you are business savvy. When the lender feels confident that you will be able to make your loan payments, you increase your chances of getting approved. This guide will share some strategies you can use to do this.
Nothing is guaranteed to get you approved, as each lender is different, but you may be able to offset low revenue numbers and limited amounts of collateral with:
- Personal guarantees
- Larger deposits
- A strong business plan
- LOI (letters of intent)
- Accounts receivable
- Startup-friendly lenders
Personal Guarantees
A personal guarantee on a business loan is a legally binding agreement where a business owner agrees to allow the lender to seize their personal assets to cover the cost of the loan if the business defaults on payments.
Unlimited personal guarantees allow lenders to claim as many assets as needed until the total amount owed is covered, while limited personal guarantees have a set maximum the lender can seize. Always try for a limited personal guarantee if you have to make one to get the SBA loan.
To improve your chances of getting approved for the SBA loan with a personal guarantee, you’ll need to offer or have one or more of the following:
- A large amount of money in your personal bank accounts
- Assets that are stable in value like jewelry or that may increase in value like real estate
- Strong retirement accounts like a 401(k)
- Vehicles that have high resale values and won’t depreciate too much during the term of the SBA loan (which is especially true for short-term business loans)
- Stocks, bonds, or investment accounts that can be liquidated or re-assigned
Large Down Deposits
If your revenue is low but you have the cash on hand to make a larger deposit on the SBA business loan, you’re showing your commitment to the lender and reducing their risk as there will be a larger buffer in case you have a financial lull. The lender having cash on hand may feel more confident that you are a serious borrower as you have demonstrated a commitment to your business and keeping it going.
A Strong Business Plan
A strong business plan can override some of the concerns about your ability to pay back the loan when you have lower revenue numbers, but only when you focus on what is important to the lender. As the business owner, you may feel that being a household name is the goal, but the lender wants to know you can make your monthly payments.
Instead of focusing on features, whistles, and bells, focus the business plan on:
- Market opportunities and how much of the market share is up for grabs.
- Marketing strategies with how much ROI you can make after expenses and how the funds will help you scale proven channels to take market share.
- Demographic charts and data that show an increasing number of people that need your product or services, and how you intend to reach them.
- Financial forecasts showing how your company will use the financing from the SBA loan to bring in more cash flow so that you can grow and make payments.
The goal is to reduce your risk by showing you are business savvy and know how to scale your revenue. By focusing on how you will bring cash flow in, you may eliminate their concerns about the lower amount of capital you have now.
LOI (Letters of Intent)
Letters of intent are when companies or businesses intend on purchasing your products or using your services. They are not legally binding but show a commitment that, once you can meet their needs by either increasing production capabilities or having the right systems in place, they will create a legally binding contract and pay you.
When the SBA lender sees there are companies out there ready to spend money, and your only roadblock is financing, this may be enough to build their confidence and approve you for the SBA loan. You may not have enough collateral or cash flow now, but the SBA loan could put you in the right financial standing.
Pro-tip: If you are using the SBA loan to increase production, you can put up the equipment you’re buying as collateral and show the resale value now and at the end of the loan term. This may help reduce your risk as a borrower even further.
Accounts Receivable
Your accounts receivable may help you get approved for an SBA loan when you have low revenue numbers, as they show you have revenue coming in on whatever the payment terms are (i.e., net 30 and 90). The SBA loan can bridge part of that gap to cover operations and be used to further increase profitability while you wait for accounts receivable to clear.
You may have lower revenue numbers now because you landed a larger client and had to spend cash reserves to fulfill their order. With the SBA loan, you can keep operations running and profit growing while being able to make payments as receivables (i.e., that large order) come due.
Pro-tip: If you don’t get approved for an SBA business loan, you may want to investigate a working capital loan instead.
Startup-Friendly Lenders
Some lenders will be more friendly to startups and may cater to entrepreneurs. Because they work more closely with startups, they may help you get approved for an SBA business loan type that meets your needs. Here are some ideas to find startup-friendly SBA lenders:
- Attend meetings at your local chamber of commerce and ask your peers which lenders they’ve used.
- Look for entrepreneur conferences, attend them, and ask the people at networking events where they go for financing.
- Create a list of 10 lenders and check their websites for entrepreneur or startup loans and see if they offer SBA loans. Not all lenders work with entrepreneurs, so this is a good sign you found a startup-friendly one.
- Search for online and alternative SBA loan lenders. There is nothing requiring you to use a local bank.
- Startup and entrepreneur forums may have recommendations that are actively lending to startups.
- If you have a co-working space in your area, visit and ask your peers about who finances them
- Use a marketplace like SmallBusinessLoans. We do the hard work of evaluating the lenders in the space and matching you with the best financing options for your needs. Click here to unlock your top funding matches in seconds or click here to learn more about SBA loan providers.
Getting approved for an SBA business loan when you do not have much collateral to put down, or if you have low revenue, is still doable. You just need to offset your risk as a borrower as much as possible. You can use personal assets with a guarantee, a strong business plan, and a bit of research to strengthen your odds of approval.
SmallBusinessLoans does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisors.
