Getting a SBA Loan: What you need to know

The Small Business Administration (SBA) is a government agency that provides loan guaranty programs to encourage small businesses throughout the United States to develop and grow. These loans still originate from a bank or commercial lender but a SBA loan can help you qualify for a lower down payment and longer term financing, which can help keep cash in the business and less toward debt repayment. An SBA approved loan can be used for business purposes toward real estate, marketing, inventory, equipment, employees, improvements, acquisitions and start-ups, as well as financing a franchise.

What makes an SBA loan attractive to lenders is that a SBA loan is guaranteed for as much as 80 percent of the loan principal. This means that should you default on your loan, the SBA will pay back a portion of that loan to the lender. That allows the lender to accept a greater risk and provide loans at more reasonable terms. Banks are much more cautious when considering who they loan to, and applying for aid through the SBA might help you get the loan you need at a reasonable rate.

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Be Cautious

First a word of caution, don’t fall victim to a bad deal. You should consider the loan rates before jumping into any deal. Unfortunately, there are deceptive companies that will take your money and huge profits are made by how the terms are worded. Read carefully and alleviate your risk by using a small Business Loan Calculator such as the one at Golden Financial Services (GFS).

The SBA can help with a variety of financing programs depending on a borrower’s needs and situation. There are specialty loans for certain demographics such as the military and for special purposes including controlling pollution, plans for exporting, or following a disaster. The most popular, however, are the Basic 7(a), Certified Development Company (CDC) 504, and Microloan Programs.

7(a) Loan Program

The 7(a) Loan Program is targeted at small business for loans up to $750,000. They have an array of sub-programs and although they are the most popular, they are still restrictive. With this program, you will need collateral equal to 20% of the principal and supply profitable financials. These loans are mainly for improvements, asset purchases, and working capital.

Certified Development Company (CDC) 504

The 504 program is typically for borrowers who need to purchase land or equipment. They are originated from a bank with an additional loan from the CDC and guaranteed by the SBA up to 40%. Up to 1 million can be borrowed with a 10% contribution from the borrower.

Microloan Program

With the microloan program, you can borrow up to $50,000 and are used for capital, inventory, supplies, furniture and equipment. Microloans are available through certain nonprofit organizations.

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Qualifying for a SBA Loan

The bank will look at many factors when deciding whether to loan your business money and will want to know as much about you as possible. They will review your credit history, as well as your ability to repay the loan. The will want to know what you will offer as collateral, and many banks will want to see how well your business is currently doing. You will be asked for your financial statements for the previous several years and a SBA representative may visit your business to evaluate collateral, see the operation, and meet key employees. The SBA offers a checklist of the documents you will need to apply for a SBA loan.

Also keep in mind it is not easy to get a SBA loan. Essentially, you have to qualify for a commercial loan that includes an added list of requirements from the SBA. Remember, the government is backing your loan and they are not going to make it easy. There is a lot of paperwork, you have to be willing to take a risk too, and your entire life must be open to the SBA.

We have Business Options for Entrepreneurs!

If you are considering a SBA loan, you should start preparing as soon as possible. Find ways to increase your credit score, pay off debt, and improve the health of your business. If the process is overwhelming or your credit score has prevented you from qualifying for a SBA loan, GFS may be able to offer small business loans based on how long you have been in business, the annual revenue, and current cash flow, instead of just your credit score. In addition, we can make the process much easier by reducing the amount of paperwork necessary, and we can get you an answer in as little as one business day.