Getting an SBA loan is a new experience for many entrepreneurs and fledgling business owners. Because it is some of the best financing out there for businesses, it is extremely important that a business do there homework before applying. Make no mistake, getting an SBA loan requires preparation and effort, but the favorable terms offered once an approval is granted could make the difference beating the odds and having a successful business, or failing a year or two down the road because your debt payments exceed your monthly revenue. Want to learn more? visit us.
1.) Who is the SBA? – The SBA stands for the Small Business Administration and was created to help small businesses in the United States. While there are other programs that the SBA offers besides financing, their loan program is one of the most well-known because it guaranteed by the US. Government and has favorable rates and terms, especially in today’s economic environment. It is important to note the the SBA DOES NOT make loans, but rather, guarantees loans made through private banks. The actual payments you make will be to a regular commercial bank, not the US government. The SBA creates the program and guarantees most of the loan against default. It is important to remember that if you have access to other low-cost business capital you will NOT be approved for an SBA loan. The program is intended for those businesses that do not have access to low-cost capital elsewhere
2.)What do I need to apply?- This is an open-ended question depending on what type of business you are trying to finance. However, the rule of thumb here should be you will need a large amount of documentation for any SBA loan. The reason why is that business loans are inherently risky given that most small business fail within 5 years of inception. Because the government is guaranteeing most of the loan, they set the documentation requirements to help mitigate this risk. Count on having to provide a detailed business plan, personal character essays/references, as well as detailed financial statements and projections. It is not uncommon for an SBA loan application to have in excess of 180 pages. However, the upside is that it could make the difference between success and failure for you business.
3.)What types of loans are available?- The SBA has several different loans designed for various business needs. However, I with a focus on the two most popular types as they will meet the needs of most of the people out there. The first is known as the SBA 7a loan. This loan is designed for small business and has the flexibility to meet the needs of most businesses. Loans are made through commercial banks, with a portion guaranteed by the SBA. Loan purposes include working capital, business renovations, equipment, furniture and fixtures, land acquisition and new construction as debt refinancing under certain circumstances. Duration of the repayment term can vary, depending on loan purpose between 10 and 25 years.
The SBA 504 loan is designed more for those businesses who may be part of a larger development or redevelopment within a community of city. This type of loan is typically just one of many used in a “financing package”, unlike the SBA 7A loan, which usually will “stand alone” as the primary financing vehicle. In an SBA 504 loan type scenario, a private bank will provide up to 50% of the financing, with SBA 504 loan picking up an additional 40% while the business borrower will contribute their own funds of 10%. It is important to remember that these types of loans are obtained also with the help of a CDC, or certified development company that is a non-profit corporation set up expressly for community economic development.