Preparing Your Small Business Loan Application
The U.S. Small Business Administration (SBA) is a federal agency that helps small businesses grow, expand and succeed. SBA offers small business grants, loans, counseling, and even surety bonds and venture capital programs for small business owners.
If you have decided to go for SBA loans, you need to know that each loan has its own application process and eligibility requirement. However, as you prepare to submit your application, you will need to collect and arrange for similar documentation (from old tax returns to your personal and business financial statements).
What is an SBA loan?
For starters, SBA doesn’t make direct loans to small business owners to finance their business needs. Instead, SBA offers a guarantee to lenders or banks for the amount of money they lend to entrepreneurs.
Interests of lenders are protected by the SBA guarantee through promises of paying the loan portion back if the business owner fails to make the loan repayment. So if a small business owner applies for an SBA loan, he or she is actually borrowing a commercial loan through an authorized SBA lender or a bank, which is measured according to SBA standards.
Basically, SBA loans assuage the risk linked to lending money to business owners who may not be eligible for traditional loans. This opens up lending opportunities to many entrepreneurs, expanding businesses, start-up, women-owned businesses, minorities and veterans.
Types of loans
There is a wide array of loans available to businesses that they can benefit from. Each of these loans are developed to fit the needs of every business owner, business type and business situation. For instance, SBA’s Low-Interest Disaster Loans can be used for the repair and replacement of disaster losses, and are available to all types of business.
SBA has also introduced Export-Assistance Loans, financing for seasonal working capital (CAPLine), and CDC/504 Loans (long-term, major fixed assets for buildings and real estate).
Furthermore, SBA can help you borrow smaller loan amounts (they’re usually less than $50,000) like the SBA Express program or its Microloan program. It’s also worth noting that SBA loan fees are extremely reasonable to veterans, which are set for loans under $150,000.
Loan that’s right for you
If you still don’t have an idea about the particular loan you need, you can check out BusinessUSA.gov where a loans wizard can guide you through the various loans available from the SBA.
If you’re not sure about your loan eligibility, you may seek the nearest SBA office to talk about your business profile and situation, as well as talk to an approved SBA lender. Lenders will consider credit factors such as your business income, collateral, equity investment, resource management and overall earnings, among others.
Plus, your working capital, which is the difference between your current assets and liabilities, is also evaluated in order for you to qualify for loans. Your working capital gauges what is remaining once you deduct your liabilities from your assets, and can result into a positive or negative amount. Working capital is available to fund existing business debts, and embodies the margin of protection you can afford your creditors.