Getting an SBA loan is a new experience for many entrepreneurs and exciting entrepreneurs. Because it is part of the best financing out there for companies, it is extremely important for a company to do homework before applying. Make no mistake, getting an SBA loan requires preparation and effort but the favorable terms offered when an approval is given can make the difference to strike the odds and have a successful business or fail a year or two along the way because your debt payments exceed your monthly income .
Who is SBA? - The SBA stands for Small Business Administration and was created to help small businesses in the United States. Although there are other programs that the SBA offers in addition to funding, their loan programs are one of the most famous for being guaranteed by the United States. Government and have favorable prices and conditions, especially in today's economic environment. It is important to note that the SBA does not make loans, but guarantees loans made by private banks. The actual payments you make will be a regular commercial bank, not the US government. SBA creates the program and guarantees most of the loan against default. It is important to remember that if you have access to other cheap business capital, you will NOT be approved for an SBA loan. The program is intended for those companies that do not have access to low-cost capital elsewhere
What do I need to do? - This is an open question depending on the type of activity you are trying to finance. The rule of thumb here should be that you will need a large amount of documentation for any SBA loan. The reason why business loans are inherently risky considering that most small businesses fail within 5 years of the start. Because the government guarantees most of the loan, they provide documentation to mitigate this risk. Expect to provide a detailed business plan, personal essays / references, as well as detailed financial statements and forecasts. It is not uncommon for an SBA loan application to have more than 180 pages. But the upside is that it can make the difference between success and failure for your business.
What types of loans are available? - SBA has several different loans designed for different business needs. But focusing on the two most popular types, they will meet the needs of most people out there. The first is called the SBA 7a loan. This loan is designed for small businesses and has the flexibility to meet the needs of most companies. Loans are made through commercial banks, with a part guaranteed by the SBA. Loan purposes include working capital, business renovations, equipment, furniture and fixtures, land acquisition and new construction as debt financing under certain circumstances. The duration of the repayment period may vary depending on the loan purpose between 10 and 25 years.
The SBA 504 loan is designed more for those companies that can be part of a major development or rebuilding within a community in the city. This type of loan is usually just one of many used in a "financing package", unlike the SBA 7A loan, which will usually be "stand-alone" as the primary finance company. In a SBA 504 loan type scenario, a private bank will provide up to 50% of the funding, while the SBA 504 will raise another 40% while the borrower will contribute 10% equity. It is important to remember that these types of loans are also obtained by means of a CDC or a certified development company which is an ideal company specifically set up for economic development.
Getting an SBA loan can be the best decision you can make as an entrepreneur. The key is to give you enough time to familiarize yourself with several requirements and "hoops" you need to go through to get this kind of beneficial funding. While an SBA loan is the best option, it will never be a quick way to finance, so take the time to do your homework and it will be time good.