12 Mistakes to Avoid When Applying for an SBA Loan

Navigating the complexities of Small Business Administration loan applications can be daunting, so we’ve gathered firsthand advice from seasoned founders and CEOs. Understanding funding needs is a crucial first step that entrepreneurs too often fail to get right. Other loan applicants swing and miss on realistic goals for user acquisition. These common pitfalls and others can sink your loan application. So join these 12 experts as they walk through missteps to avoid.

• Don’t Underestimate Funding Needs
• Prepare Financial Documents Thoroughly
• Provide Proof of Industry Experience
• Seek Professional Application Assistance
• Ensure Document Accuracy and Detail
• Detail Your Marketing Strategy Clearly
• Project Revenue Growth Realistically
• Demonstrate Understanding of Customer Base
• Include Customer Testimonials
• Itemize Collateral Details
• Craft a Comprehensive Business Plan
• Be Realistic About User Acquisition

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Don’t Underestimate Funding Needs

I can say that underestimating funding needs was a significant challenge during our SBA loan application process. Initially, we projected only the basic requirements for our business expansion, without fully accounting for unforeseen expenses or future growth opportunities. This led to a situation where we had to go back and request additional funding, which complicated our financial planning and delayed our project timelines. 

To avoid this mistake, I recommend thoroughly assessing all potential costs, including operational, marketing, and unforeseen expenses. It’s also a good idea to build a buffer for unexpected costs to ensure you have sufficient funds to cover all aspects of your business needs. By accurately estimating your funding needs from the start, you can avoid delays and ensure smoother operations and growth.

Rob Stevenson, Founder, BackupVault

Prepare Financial Documents Thoroughly

Reflecting on my experiences with the SBA loan application process, one significant mistake I made was not thoroughly preparing my financial documents beforehand. My business, Or & Zon, operates on a global scale with artisans all around the world, leading to a complex financial scenario. 

When I first applied, I underestimated the importance of a well-categorized and comprehensive presentation of my financial health, which resulted in an arduous application process and unnecessary delays. 

To others embarking on this journey, I would recommend spending ample time prepping your financial documents. Ensure they provide a clear picture of your company’s financial status and anticipate any potential questions loan officers might have about your unique business model. This preparation can significantly expedite the process and improve your chances of securing the necessary capital for growth.

Guillaume Drew, Founder & CEO, Or & Zon

Provide Proof of Industry Experience

During our SBA loan application, I made a huge error by not providing enough proof of our industry experience. I thought our innovative AI-captioning technology would be enough to impress the loan officers. 

However, they wanted to see evidence of our team’s background in AI and video production. I had to quickly gather resumes, project portfolios, and client testimonials to show our expertise. This delay could have been avoided if I had included this information from the start. Now, I always advise other tech startups to showcase their team’s experience clearly in loan applications.

Khurram Suhrwardy, CEO, Caption Easy

Seek Professional Application Assistance

From my experience, a costly mistake many business owners make is going through the SBA loan application process alone. Whether it’s your first time applying for a business loan or you’ve done it before, handling all the moving parts can be overwhelming, especially while trying to run your small business.

I think often business owners don’t have the right advisory team. They end up going back and forth with their lender trying to secure the correct documentation when they really should be reaching out for help from their accountant, attorney, or local Small Business Development Center (SBDC).

So, my recommendation is to seek help from financial professionals, SBDCs, or other local business organizations. They can assist you in preparing your business finances, addressing any questions or issues during the underwriting process, and hopefully, improving your chances of getting your loan approved.

And once you’ve secured approval, the insights and strategies you’ve gained from these experts can be invaluable. You can use this knowledge to effectively deploy your capital and set your small business up for successful growth.

Rosana Tejada Crespo, CEO, Tejada Solicitors Law Firm

Ensure Document Accuracy and Detail

When applying for an SBA loan, the biggest mistake I made was assuming the process would be straightforward—just submit the forms and wait for approval, right? Wrong. I didn’t realize how crucial it was to have every single document in perfect order, from tax returns to a detailed business plan. I thought my quick responses to the bank’s questions were enough, but they weren’t.

I skipped over some details, assuming they weren’t important, but those tiny details caused big delays. The SBA is meticulous, and they will scrutinize every aspect of your application. I also underestimated how long the whole process would take. I didn’t give myself enough time, so when I hit a snag, it felt like the entire business was on hold.

What I learned? Triple-check your documents, and if in doubt, over-prepare rather than under-prepare. Make sure your financial statements are not just accurate but also easy to understand. Consult with an accountant if necessary, because any discrepancy, no matter how minor, can send your application into a frustrating loop of delays and additional requests for information.

Also, don’t forget about the “character” section of the application—background checks and personal credit history play a significant role. I underestimated how much my personal finances would affect the application process. If I could go back, I’d make sure every financial and legal aspect of my business and personal life was spotless before even thinking about applying.

In the end, the loan came through, but not without unnecessary stress and delays. The takeaway? The SBA loan process is like running a marathon, not a sprint—prepare thoroughly, be patient, and don’t skip over any details.

Francisco Gonzalez, CTO, Le Website Tech

Detail Your Marketing Strategy Clearly

As the owner of OneStop Financial Services, I made a big mistake during my SBA loan application by not explaining our marketing strategy well enough. I thought our basic plan would be good enough, but the loan officer wanted more details. I should have spent more time outlining our specific marketing tactics and goals. 

This oversight almost cost us the loan, and we had to scramble to provide additional information. Now, I always tell other business owners to be super thorough when describing their marketing plans in loan applications.

Matt Willoughby, Founder, OneStop Financial Solutions

Project Revenue Growth Realistically

One big mistake I made during my SBA loan application was providing inaccurate revenue growth projections. I was way too optimistic and didn’t base my numbers on solid data. This led to a lot of back-and-forth with the loan officer and delayed the whole process. 

Looking back, I should have spent more time researching industry trends and being realistic about our growth potential. My advice to others is to be conservative in your projections and have solid evidence to back them up.

Sarah Baalbaki, Head of Client Success, Teamworks Executive Suites

Demonstrate Understanding of Customer Base

From my experience in the startup ecosystem, a critical mistake in SBA loan applications is neglecting to demonstrate a strong understanding of your customer base. Many applicants focus solely on their product or service, overlooking the importance of customer insights.

At Outverse, we’ve seen how crucial customer engagement is for SaaS companies. Similarly, for an SBA loan, showing that you truly understand your target market can set you apart. Include data on customer acquisition costs, lifetime value, and retention rates if possible. This approach demonstrates not just your business acumen, but also your potential for sustainable growth—a key factor lenders consider.

Kyran Schmidt, Cofounder, Outverse

Include Customer Testimonials

As the owner of Yellow Card Properties, I made a big mistake by undervaluing the importance of customer testimonials during my SBA loan application. I thought my financial statements and business plan were enough, but the lender wanted to see real feedback from satisfied clients. 

Looking back, I should have collected and organized testimonials from day one. It would have made my application much stronger and shown the human side of my business. Now, I always encourage other real estate investors to gather and showcase positive customer experiences—it can make all the difference in securing funding.

Ryan Rice, President, Yellow Card Properties

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Itemize Collateral Details

During my SBA loan application process, I made the mistake of not providing an itemized list of what I intended to use for collateral. I had assumed the lender would understand the overall value of my assets without needing a detailed breakdown. This oversight led to confusion and delayed my application, causing unnecessary stress. The lender requested more documentation, which set back my timeline significantly. I learned that being transparent and detailed in presenting your collateral can make a substantial difference in the approval process. 

By clearly itemizing assets, I could demonstrate their worth and relevance more effectively. In future applications, I ensured that every detail was crystal-clear to prevent any misunderstandings. It taught me that clarity and thoroughness are key in financial dealings.

Valentin Radu, CEO & Founder, Blogger, Speaker, Podcaster, Omniconvert

Craft a Comprehensive Business Plan

During my SBA loan application, I overlooked the significance of a detailed business plan. I focused heavily on my financial projections and credit history, thinking they would speak for themselves. But when I got into discussions with lenders, it became clear that they needed a comprehensive business plan that demonstrated not just the numbers but also a clear vision and strategy. 

The takeaway here is don’t skimp on your business plan. It’s not just a formality; it’s your chance to show that you’ve thought through every aspect of your business and have a solid plan for success.

Austin Rulfs, Founder, SME Business Investor, Property & Finance Specialist, Zanda Wealth

Be Realistic About User Acquisition

I greatly overestimated how quickly people would start using our software. I thought we’d have tons of users right away, so I asked for a huge loan. But it took much longer to get people to try our product than I expected. This made it hard to pay back the loan at first, and we had to scramble to find new ways to make money. If I could do it over, I’d be more realistic about how long it takes to get customers and ask for a smaller loan to start.

Dan Ponomarenko, CEO, Webvizio

Image by rawpixel.com on Freepik

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