Can a DBA apply for an SBA loan? If YES, what are the conditions? If NO, what are the alternatives? Here is everything you need to know about SBA loans. A DBA is known as a “Doing Business As”, and it can be explained to be a fictitious business name, assumed name or trade name that a business assumes if it does not want to use the name of the business owner.

A DBA lets a small business work under a name that differs from the owner’s personal one or the one used to incorporate the business in the first place. Businesses usually file a DBA if they feel uncomfortable for some reasons to use the name they legally used to incorporate the business.

Sole proprietors who legally would have to use their personal name as a business name, can file a DBA to create a brand that’s more specific to the type of business they’re running. Businesses that have already formed a business entity, such as a limited liability company or S corporation, can file to do business under a different name, sometimes opting to drop the “LLC” or “Inc.”

If you own multiple businesses under one umbrella organization, filing DBAs lets you separate the businesses through the use of a DBA. Filing a DBA could help you test drive your business idea without spending the money to incorporate right off the bat.

Can a DBA Apply for an SBA Loan?

The answer is YES and NO. It will depends on certain factors. One thing you should know is that filing a DBA doesn’t create a separate business entity. If you are a sole proprietor, your DBA doesn’t protect your personal assets from being seized in the case of a lawsuit. Forming a business entity means your personal assets aren’t at risk, and filing a DBA won’t alter that protection.

This goes to show that a DBA can very easily apply for an SBA loan very much like any small business. This is because a DBA is in most cases a small business and every small business is eligible to apply for an SBA loan, depending on the kind of loan in question.

SBA loans typically range from 5–25 years. Even though SBA-backed loans exist in order to give small business owners more access to financing, these loans are still very competitive. For your business to be given an SBA loan, the business must be able to adequately service the loan and all other debt obligations from the cash flow of the business. Some of the criteria SBA loan lenders require of businesses intending to apply for this loan include;

  • At least two years in business
  • A credit score of 620 or higher
  • More than $100,000 in annual revenue

The SBA board will look at the experience of the management of the business and consider the borrower’s credit history, if any. But you should know that a strong borrowing history is not a requirement to get this loan. The applicant must demonstrate adequate cash flow necessary to meet the debt service requirements of the loan and all other financial obligations of the business.

How to Apply for an SBA Loan for your DBA

1. Ensure that your business is eligible

When you think your business needs an SBA loan to kick off or to stand firm, you have to first consider if your business is eligible for the SBA loan that is currently available. The SBA might be open to businesses that don’t typically qualify for loans, but it still has strict eligibility criteria. The SBA’s most general requirements include:

  • Good to excellent personal credit for all major owners
  • For-profit, US-based business in an eligible industry — vice and loan packaging typically can’t qualify
  • In business at least two years
  • Proof the business tried and failed to get funding from other lenders
  • No delinquencies or defaults on government loans
  • Meet the SBA’s definition of a small business
  • Owners have invested a reasonable amount of equity in the business

Your lender or program might also have additional eligibility requirements. Your business could qualify for an SBA startup loan through the 7(a) program if it doesn’t meet the time-in-business or credit score requirements.

2. Pic a Preferred Program

Just because most businesses go for the SBA 7(a) program doesn’t necessarily mean it’s right for you. Choose a program that works best for your business. Here are some of the most common SBA loans.

6 Types of SBA Loans

  1. SBA 7(a)
  2. SBA CAPLines
  3. SBA 504
  4. Disaster assistance
  5. SBA Export programs
  6. SBA Paycheck Protection Loan
  • SBA 7(a). The 7(a) program actually covers several different types of SBA loans. But the standard 7(a) loan is a term loan up to $5 million that any qualified business owners can get for nearly any legitimate purpose.
  • SBA CAPLines. Falling under the umbrella of the 7(a) loan program, the CAPLine is the SBA’s standard use line of credit up to $5 million.
  • SBA 504. These term loans are generally for buying fixed assets like equipment or real estate to help a business expand, which acts as collateral. This program requires a down payment of around 10% to 20% and instead of applying through a lender, your business applies through a Certified Development Company.
  • Disaster assistance. This program was made to help businesses get back on their feet after suffering physical damage or financial difficulty from a disaster like a hurricane or the coronavirus pandemic. They come with extra low rates, in amounts up to $2 million.
  • SBA Export programs. The SBA offers three programs designed for small export businesses that typically have trouble getting a business loan. These include the SBA Export Express program, Export Working Capital program and the International Trade loan program.
  • SBA Paycheck Protection Loan. The SBA started the new Paycheck Protection Loan program to help small businesses, independent contractors, sole proprietors and nonprofits affected by the coronavirus outbreak.

3. Find a lender

The SBA doesn’t provide loans itself. Instead, it works with lenders who provide the loan and process the application. It’s the lender that sets credit requirements and determines whether or not your business is eligible. You have a couple of options when looking for the right lender. You can search for lenders on your own or use a referral service.

Referral services like SmartBiz are great for businesses that aren’t experienced with lending or don’t have the time to do a comprehensive comparison themselves. However, they’re typically limited to their network of lenders, so you won’t be choosing from as big a pool. You also might have to pay fees for their services, making it more expensive.

4. Gather your paperwork

Once you’ve found the right lender or referral service, it’s time to start gathering the documents you need for the application. While it depends on the lender and type of program you’re applying to, most business owners will need to provide the following information;

  • How much your business wants to borrow
  • A detailed list of how your business plans to use the funds
  • Financial projections for the next one to three years
  • A cash flow statement
  • A current profit and loss (P&L) statement
  • A current balance sheet
  • Two years of business tax returns

If any business owner owns 20% or more in another business, they will likely need to provide details on that business as well, especially financial statements. If you intend to buy another business with your loan, you’ll also need to provide financials on that business, including tax returns and the purchase agreement.

5. Complete and submit the application

Like with rates, credit requirements and documents, the application also varies from lender to lender. However, a lot of the information should already be in your business plan. Be prepared to provide:

  • An executive summary
  • Basic details about your business, such as contact information and how many employees work there
  • An ownership breakdown by percentage
  • Details on other government-issued debt, like SBA loans or USDA financing
  • Specifics on how your business will use its SBA loan
  • Details on how your business plans to pay it back

6. Thoroughly fill out the forms

No SBA application is complete without several different forms. Depending on your loan type, business type and even your business owners’ personal histories, your business will likely need to fill out at least two forms. Here are some of the most common forms SBA businesses need to fill out.

Common Type of Forms SBA Businesses Need to Fill

a. SBA Form 1919: Borrower Information Form

All SBA 7(a) and Community Advantage program applicants need to fill out the borrower information form. It provides the SBA and your lender with basics on both the business and all owners and affiliated businesses or investors.

Your lender uses this form to check your business’s eligibility, like making sure that there are no conflicts of interest. It also uses this to determine whether or not your business or its owners need to fill out other forms.

b. SBA Form 413: Personal Financial Statement

All SBA 7(a) and 504 applicants are required to fill out a Personal Financial Statement for each business owner or cosigner. It goes into detail about each owner’s household assets and liabilities. These include debts, real estate, life insurance policies and even the value of that silverware set you inherited from your grandmother.

Navigating this form is a little complicated, especially if you aren’t an accountant. So you need to be really careful, or you can get the help of an accountant.

c. SBA Form 159: Fee Disclosure Form

This form is actually the SBA’s way of protecting borrowers from paying unnecessary fees — or too much for legitimate services. All applicants applying for a 7(a), 504 or disaster assistance loan need to submit this form if they received help from an agent.

The form itself is easy, but navigating the SBA jargon isn’t for amateurs. In fact, figuring out who needs to complete it — if anyone — typically takes more time than anything else.

d. SBA Form 912: Statement of Personal History

All business owners and cosigners need to complete a Statement of Personal History if even just one has had a run-in with the law. Basically, it asks for details on any past or current criminal convictions, including recent arrests for a misdemeanor.

Your business isn’t eligible for an SBA loan if any owner is involved in criminal proceedings — and no, they can’t sell their shares to become eligible — but it’s possible to qualify even with a felony past. The SBA decides this on a case-by-case basis.

Ejike Cynthia