Kickstarting your business dreams can be a tough job, especially when it comes to securing capital. Lucky for all small business owners, there is support from a government agency known as the Small Business Administration or SBA. The SBA helps small business owners who are struggling to obtain working capital, and makes lending a viable option.
Who is the SBA and What is an SBA Loan?
The SBA is a government agency built around helping Americans start, build and grow a small business or franchise. The SBA is mostly known for it loan program, as unlike typical bank loans the SBA does not directly loan money. Instead, the SBA partners with lenders using specific rules and guidelines, to offer government backed loans.
Because SBA Loans are government backed, they can cover a lender’s loss up to 75% if a loan were to default. This reduces risk for the lenders while also giving small business owners easier access to working capital. SBA Guidelines also simplify the loan process, offer lower down payments and include more flexible overhead requirements.
Who should get an SBA Loan?
SBA loans are offered for a multitude of uses, but are most popular with an entrepreneur or business owner looking to refinance, hire employees or open a new location. SBA loans are also popular for first-time business owners who are looking to open a franchise location.
SBA loans are perfect for a small business owner who lacks a strong credit score or a stable financial history. With a business owner like this, typically a bank would hesitate to issue a large sum of money. Partnering with the SBA allows a bank or lender to issue a large loan to a small business owner such as one who lacks strong credit without the risk of getting burned.
How do I obtain an SBA Loan?
Although SBA makes it far easier to gain access to capital, that does not mean banks or lenders will hand out loans freely. Eligibility for an SBA loan can vary by lender. If you are looking to obtain capital through the SBA it would be worth considering these steps to help you along your loan approval process:
- Ensure you are loan ready: Find and follow any possible ways to strengthen your credit and scores. Also create and provide any and all business documents such as: creating a strong business plan with projections, cash flow statements, P&L statements, tax documents and other financial documents. These documents vary by lender, but it is a good idea to have these documents available in order to assess the amount of money you are looking to borrow.
- Ensure you qualify: The SBA has specific requirements in order for you to be able to borrow through them. You must: Be a for profit company, Do business in the United States, have equity in the business and be unable to obtain funds from any other financial lending sources. It is also important to remember that the SBA also only loans to small businesses, so you must meet the requirements that the SBA holds to be referred to as a “small business”.
- Finding a Lender: The SBA does not connect you directly with a lender, so you have to make sure you are prepared to ask the right questions and make informed decisions when taking out an SBA loan. You should consider your interest rate, application length, down payment and collateral when asking questions.
- Filling out Forms and Applying for Your Loan: This step depends on the lender, but generally involves filling out applications as well as other forms. If you happen to get stuck, checkout the SBA website or consult your state SBA office for help. After completing the SBA application, it can take up to 90 days for them to be processed and approved.
Building your Dream Business with the SBA
SBA loans can be a life saver for small business owners who may need a financial boost to pursue their business dreams. The SBA makes business owners far more attainable for entry level entrepreneurs and small business owners. It must be known that an SBA loan is not a free pass, as approval can be a tough process but the security of an SBA loan justifies that time involved.