Receiving the news that your SBA loan application has been approved is certainly something worth celebrating. However, it’s not the end of your financial journey. Approval is a major milestone, but there are still steps that have to be taken before you receive the money that you need.
If you’ve recently applied for an SBA loan, knowing what happens after the approval is an important part of planning ahead.
Reviewing and accepting the SBA loan commitment
It’s important to examine all terms closely, especially details related to loan payment schedules, variable versus fixed interest rates, and any personal or business guarantees. Getting your approval letter provides you with an opportunity to make sure that the terms of the loan align with your expectations. If anything is unclear, this is the time to ask questions.
When you sign the commitment letter, you’re legally agreeing to the terms of the loan. This puts the loan into its final state of underwriting and preparation. Acceptance signals to the lender and the SBA that you’re ready to complete the remaining requirements needed to move toward loan disbursement.
Completing pre-closing requirements
Once you’ve accepted the loan commitment terms, you’ll have to satisfy a series of pre-closing requirements. This often includes updated financial statements, proof of insurance, finalized business documents, and verification of how you will use the funds that you’re borrowing. Lenders rely on this information to ensure that nothing has changed during the application process.
The phase of the SBA loan process is mostly administrative, but it may still take some time. The most effective way of speeding things along is to have the required documentation ready as soon as you sign your commitment letter. Any delays in responding to lender requests may push back the closing date. Staying organized and responsive may help keep the process on track.
In some cases, especially when dealing with larger sums of money, lenders may request additional documentation to meet SBA standards. Completing these steps quickly and thoroughly can help you avoid any last-minute delays.
Understanding the SBA loan closing process
The SBA loan closing process is where all the legal and financial documents are finalized. During closing, you’ll sign promissory notes, security agreements, and paperwork related to any collateral that you have to put up. These documents legally bind you to the terms of the loan.
Closing can occur in person or remotely, depending on the lender’s process and state regulations. While the paperwork can feel extensive, each document plays a role in defining loan servicing expectations and repayment obligations. Take the time to thoroughly review every document that you’re signing. If possible, have your business attorney review them to make sure that you understand everything that you’re agreeing to.
Once closing is complete, the loan is considered fully executed, though funds are not always released immediately. The loan must still pass final verification before loan disbursement occurs.
Final lender and SBA review
Before the funds are released to you, your lender will conduct another review to ensure that all of the requirements have been met. This step ensures the loan complies with SBA rules and the lender’s underwriting standards. It also verifies that the required documents were signed correctly and submitted in full.
In some cases, the SBA may also conduct an internal review to check financial compliance. This review is usually quick, but it can add a few days to the process. Once the lender and the SBA agree that everything is in order, the loan is ready to be funded and disbursed.
SBA loan funding and disbursement
Loan disbursement refers to the release of funds, either to the borrower or to the vendor, depending on the purpose of the loan. For example, if you’ve requested an SBA 7(a) loan for working capital, the funds will be released to you. Conversely, if you get a loan for debt consolidation, the funds will likely be released to your existing creditors. Funds can also be disbursed as either a lump sum or in stages. The funding schedule will be outlined in the initial agreement that you sign before funding.
The timing of loan disbursement varies by lender, but it generally takes somewhere between five and 14 business days. Borrowers should confirm where the funds will be deposited and how they can be used to remain compliant with SBA guidelines.
Once the funds are disbursed, the loan officially enters the repayment phase, even if payments are deferred for a short period. Knowing how these funds are distributed and tracked is an important part of taking out loans in the future and repaying your current loan on time.
Post-funding requirements and compliance
You’re responsible for following SBA guidelines, even after the funds are distributed, including how you use the funds. As part of the initial application process, you will provide a detailed plan for the money. That plan must fall under one of the allowable uses set forth by the SBA.
Lenders continue to monitor the loan, even after you have the funds. Failure to comply with SBA requirements can lead to penalties, including the loan going into default, even if you’ve been repaying it on time. It’s also important to communicate with your lender if your business experiences financial challenges. Many lenders can offer guidance or temporary solutions to help borrowers remain compliant.
SBA loan repayment timeline and ongoing management
Some SBA loans include an initial deferment period during which you won’t have to make monthly payments. This allows you to start generating income with the money that you borrowed. Depending on the purpose of your loan, you may be required to start making payments the month after the loan is funded. This information will be provided in the loan agreement, and it’s crucial that you understand your obligations. Making your payments on time helps avoid damage to your credit score and other penalties.
Loan servicing includes managing payment processing, interest calculations, escrow accounts, and borrower communications. Most lenders provide online portals to help borrowers track balances, payment history, and upcoming due dates.
Make sure that you account for loan repayment in your budget. Not only does it ensure that you’re compliant, but it also ensures that you look like a viable candidate for a loan in the future.
Start your funding journey today
Understanding what happens after SBA loan approval helps business owners prepare for each step with confidence. From underwriting and closing to loan disbursement and repayment, every phase plays a role in the long-term success of your business.
The SBA loan timeline starts when you fill out your application and submit it to a lender. Whether you need to refinance debt at a more favorable interest rate or invest in a new commercial facility, SmartBiz Bank® can help. Contact us today to start your SBA loan application and get the funds that you need to grow your business.
FAQs
How long does it take to receive funds after SBA loan approval?
Once your SBA loan application is approved, it can take anywhere from a few days to several weeks to receive funds, depending on the size and complexity of the loan. Once the loan passes through underwriting, pre-closing requirements, and the closing documents are prepared, you should expect to receive the funds within 14 days.
What documents are required after an SBA loan is approved?
Borrowers are usually required to submit updated financial statements, proof of insurance, business licenses, detailed plans for the funds, and signed loan closing documents. Depending on the size of the loan, length of business history, and other factors, you may also be required to provide documentation about collateral and personal credit history.
Are there conditions I must meet before SBA loan funds are released?
Although the SBA guarantees a certain percentage of SBA loans, there are still requirements that you must meet. These may include financial standards, insurance policies, and collateral. Lenders review these conditions to ensure the loan remains eligible under SBA guidelines, and funds are released only after all conditions are fully met.
Can an SBA loan approval be revoked before closing?
Yes, an approved SBA loan can be revoked before it reaches closing. Common reasons for a loan being revoked include significant changes in financial performance, undisclosed debts, and failure to meet pre-closing requirements. Lenders can also withdraw their approval if documents are not provided in a timely manner. Being transparent about any past financial issues and quickly responding to questions from the lender can help you avoid having the loan canceled before you receive the funds that you need.
