According to the data from the 2010 census of the United States, over 27.9 million small businesses are the backbone of the economy. They go through registrations, employing over 120 million people, about half of the nations entire workforce. A part of the SBA (small business Administration) is to help small businesses in America to secure the funding that they need to grow and operate.
Being a federal government agency, note that the SBA actually does not lend small businesses money directly. Rather it sets some SBA loans guidelines that its partners make, including credit unions, banks, development organizations, microlending institutions, and more. The SBA guarantees that these institutions grant a portion of these loans. They may be repayable ones, eliminating possible risks for all lenders.
Most SBA lenders have the freedom to provide some longer-term loans too, rather than 5 or 10 years, in case real estate purchase (or with a balloon payment in the end). Lenders may also grant 25 years, which eliminated the final payment or need for refinances in a few years again. For some shorter-term assets like equipment, the terms may go to ten years, rather than the usual 3-5 years.
The SBA Loan Programs
When you choose an SBA loan program, you should know that each one comes with a specific design for small business owners, who have no direct access to term financing in reasonable options. The common types of SBA loan programs include:
The 7(a) Program: SBA offers this program as the primary one to help existing and startup small businesses to obtain their finances. These are the most common and basic type of loan, they are flexible as well. The money you receive from this loan could serve a variety of business purposes, such as machinery and equipment, working capital, fixtures and furniture, leasehold improvements, debt refinancing, or renovating or purchasing buildings and land. The loan maturity in common cases is about ten years for the working capital and takes about 25 years for some fixed assets. The people willing to borrow can also apply through lending institutions.
Microloan Program: This SBA program is suitable for startups and small businesses, growing or newly established businesses. The SBA makes these funds available to specially designated lenders (intermediaries) such as Aurumfi. The loans make about $50,000 loans, and you can use the loan as working capital or for the purchase of supplies, fixtures, inventory, machinery, or furniture. The average loan could be $13,000, but you cannot use it to pay any of your existing debts or real estate purchase.
Disaster Loans: SBA also offers this option to businesses that declare disaster effects. The low-interest loans can help for replacement, or repair of damaged personal property, real estate, equipment, machinery, business assets, and inventory.
Things You Will Need to Apply for the Loan
As you apply for the SBA loan, you will have to fill out documents, forms and some important papers for the loan you wish to get. SBA also encourages most borrowers to give some of their basic information to that lenders will ask for, no matter the type of loan you choose.
- Business financial statements
- Financial statements and personal background
- Profit loss statement
- Lists of debts
- Business license or certificate
- Business history and overview
- Income tax returns
- Resumes for the key members
- Business Lease
Note that the SBA also gives advice to small businesses that they should apply for a loan and prepare for some questions like:
- How you intend to use the loan
- Why do you plan to apply for the loan
- What business debt do you have now, do you have creditors
- What assets do you need to purchase and who are your suppliers
- Who are the members of your management team
Does Your Business Plan Matter?
Regardless, of whether you an established company or a new startup the key to the best application is a business plan well written. A good business plan is not just the map road that guides businesses from their planning to startup and success, but it also shows the lender that your business has potential to grow. It gives a clear understanding of your business, clear view including how it should run, and how you intend to repay the loan.
All lenders want to know that you are sure of your decision and that you are knowledgeable about your business as well as the competitive market. On every step of the way, you really must understand what you are actually doing and convey it to the lenders during the process of application.
Finding a Suitable Lender
You can talk to your friends or family to get an idea of SBA lenders in your area or search in the local market. You will find so many lenders and designated lenders. You can also search online, contact local attorneys, accountants or people who are looking for a large presence of lenders.