Learn how applying before your business is financially ready, challenging personal credit, and confusing profit with cash flow can affect how a lender evaluates your business loan application.
On this week’s free webinar, SBDC director Kelly Bearden discusses the five biggest pitfalls in getting a small business loan and potential solutions.
This marks the 369th episode of the “Webinar Wednesday” business series that provides news and information helpful to employers and business owners. Go to https://csubsbdc.com/ to sign up to meet with a business advisor at no cost.
TIMESTAMPS
00:00 Intro
00:56 What’s up today January 28, 2026
03:47 Poll question #1: “If you are seeking funding for a small business loan, how much would you like to borrow?”
05:35 Poll question #2: “What do you think lenders care about most?”
07:56 Poll question #3: “How confident are you in your ability to explain your cash flow to a lender?”
09:31 Kelly introduces Israel Lara, Jr., U.S. Small Business Administration for a live look-in
09:43 Israel begins to speak on SBA Initiatives and Upcoming Events
10:09 Made in America Manufacturing Initiative
10:49 Make Onshoring Great Again portal: Identifies US suppliers and manufacturers, reduces overseas exposure, and brings production back to the US.
SBA Manufacturer Onshoring Portal
https://www.sba.gov/priorities/american-manufacturers/make-onshoring-great-again-portal
11:40 SBA2: Free tool connecting businesses with verified US manufacturers, producers, and suppliers for onshoring operations and supply chain strengthening.
12:03 Cutting Red Tape for Small Manufacturers – Red Tape Hotline
12:35 Loan Programs 2026 – MARC, 504, 7A working capital pilot, and more
13:05 Funds training, partnerships, and opportunities to build a skilled workforce through SBA’s Office of Entrepreneurial Development.
-Maximum loan amount for a 7A loan is $5 million.
13:26 Eligibility factors: Business income source, credit history, and operating location. Lenders assist in determining the best loan type.
Economic Corner
16:18 Variable rates tie to small business loans (impact on cash flow)
16:59 Layoffs at larger firms – UPS, Amazon, Pinterest
17:47 Consumer confidence down vs. small business optimism up NFIB study
NFIB Small business survey optimism
https://www.nfib.com/news/press-release/new-nfib-survey-small-business-optimism-continues-to-rise
24:10 Subscribe to our CSUB SBDC YouTube Channel https://www.youtube.com/@csubsbdc
Small Business Loan Application Pitfalls – Just Outside the Top 5
29:19 Weak or Vague Use of Funds
-Not having a strong use of funds statement
-Borrowers must document how loan money will be spent, providing a detailed list of purchases and an explanation of why the funds are needed for business expansion or recovery.
-Lenders want to see the efficient use of accessed funds.
31:54 Not understanding collateral or security issues
-Collateral requirements vary by lender and loan size.
-Historically, a 1:1 collateral-to-loan ratio has been common.
-Assets accumulated in the business (e.g., equipment, land, building) have strong collateral value.
-Working capital, inventory, leasehold improvements & furniture/fixtures may have less or no collateral value.
-Some loan programs have lesser collateral requirements.
-Personal guarantees are often required, pledging personal assets for loan repayment.
34:15 Ignoring industry risk factors
-Lenders consider industry risk, as industries are risk-tiered.
-Industries like restaurants, construction, some retail, trucking, and startups face tighter scrutiny.
-Borrowers in high-risk industries must explain how they will manage specific challenges (e.g., for trucking, demonstrating backhaul strategies).
-Concentration on margins, seasonality, or labor intensity can impact business credibility.
36:44 Mismatching loan purpose, product, or lender
-Lenders have specific lending limits (e.g., up to $50,000).
-Avoid using short-term debt (e.g., 3-4 years) for long-term assets (e.g., 8-10 years for a vehicle).
-Avoid using long-term loans (e.g., 7-10 years) for short-term assets like working capital or startup expenses.
-Credit lines are ideal for paying interest only on the amount borrowed, but most lenders prefer existing businesses with historic cash flow for these. Term loans are generally more available.
-It is crucial to understand all loan terms and cash flow aspects, especially with online lenders where interest rates and daily payment impacts might be unclear.
TOP 5 Small Business Loan Application Pitfalls
40:17 Number 5 – Not seeking advice
-Applying without preparation can burn bridges with potential lenders and lead to unforced errors.
-Prepared borrowers secure better terms.
-SBDC encourages seeking advice from technical assistance providers.
41:50 Number 4 – Need for an equity injection (down payment)
-The misconception that banks will finance 100% of project costs is incorrect; 100% financing is very rare.
-Equity injection (down payment) can be cash or accumulated business assets.
-Alternative sources like crowdfunding (e.g., Kickstarter) or grants (e.g., City of Bakersfield entrepreneurship grants) can count as cash injection.
-Lenders view transactions as a partnership, requiring borrowers to have “skin in the game.”
44:17 Number 3 – Challenging personal credit
-Personal credit history impacts business loan approval and interest rates.
-Good credit enhances approval odds.
-Frequent mistakes include late payments, too many open files, too many reviews, and not removing credit reporting errors.
-Repairing bad credit takes time but significantly helps in the long run.
46:28 Number 2 – Confusing profit with cash flow (DSCR focus)
-A business’s profit and loss statement does not always equal its debt service capacity.
-Lenders focus on the debt service coverage ratio, not net income.
-Non-cash expenses, owner draws, and timing differences are critical for cash flow analysis.
-Businesses may be profitable but fail the credit committee test due to a lack of understanding of cash flow.
47:49 Number 1 – Financial readiness bungles
-Applying before the business is financially ready with outdated or incomplete financial information.
-Inability to demonstrate that the project will cash flow to a cash flow lender.
-Tax returns that do not align with internal profit and loss statements indicate a lack of readiness.
-Weak or inconsistent revenue trends are red flags.
-Lenders prioritize predictability over optimism, requiring bulletproof financial information.
49:10 Additional Funding Considerations
Alternative funding, strategic funding, credit cards, overstated projections, documentation, waiting too long, lender decision scorecards, and cash-flow forecasts.
52:50 Questions and Answers with webinar attendees