Introduction to SBA loans

In times of financial stress it is common to see a rise in entrepreneurship. Many people use a shaky economy as an opportunity to create their own small businesses. This means that more and more people are looking into loans from the Small Business Administration (SBA).

The SBA

Before choosing a SBA loan you need to separate fact from fiction. Contrary to popular belief, a loan is not the last resort for a small business. However, SBA loans usually offer better rates than other lenders. For example, loan terms may be 25 years and offer a 90 percent advance rate for commercial property. Furthermore, SBA loans are available for a variety of small businesses. They help the smallest of businesses as well as those that employ up to 500 employees.

Many people believe that obtaining an SBA loan takes too long, but if you work with someone experienced in handling SBA loans, such as a Preferred Lender, the process is rather fast. If you do receive a SBA loan, however, you must pay it back. The government does guarantee 75 percent of most SBA loans, but the Small Business Administration has a vested interest in seeing that the taxpayer money is paid back.

Should you choose to apply for a SBA loan, be aware that you do not work directly with the SBA. A bank, where the loan must first be approved, handles the process. The SBA guarantees a portion of each loan to the bank, but the bank tries to ensure that the borrower is in a position to pay back the loan in full.

The Application Process

When applying for a loan from the SBA, the bank will examine certain things carefully. As with any other type of loan your credit score plays an important role in your chances. Do what you can to improve your score before applying for a SBA loan, and have a co-signer ready if you feel that your credit score is too low. A good down payment and a solid business plan might be enough to make up for less than perfect credit at some institutions. Odds are, however, that a larger loan will require some type of collateral such as property or stocks.

The bank will examine more than your financial background. They are investing in a business and need to know that the business has a chance of surviving and paying back the money it owes. A thoughtful and thorough business plan will help convince a lender of a business' viability. You should also be prepared to explain how your background and experience would benefit the business. Knowing how to run a business will build a lender's confidence in your ability to pay them back. The business plan should be a conservative estimate of the money that you company can generate. Be as accurate as possible; lenders do not see wild conjectures as a stable investment.

Applying for a small business loan implies that you do not have the finances to fund the business yourself. However, lenders still expect you to contribute some of your own money to the venture. If you do not want to take the risk with your funds, it does not instill confidence in the lender. You need to financially back up your belief that your business can succeed.

Before applying for a loan at a bank, do your research. All lenders are not the same. Find one that is more likely to work with you based on your credit score and business plan. Large recognized banks have stricter rules and guidelines. They are more likely to back an established business model and less likely to work with you if your credit score is less than perfect. Smaller banks, on the other hand, are a little more flexible and willing to work with their customers, even if it means taking a small risk.

Choose a lender that has vast experience working with the SBA. There are many rules and regulations that the lender must be familiar with in order to expedite the loan process. Inexperienced lenders are the reason that people believe SBA loans takes longer than other types of loans. Look someone with an established track record such as a Preferred Lender also known as a PLP. These lenders are already given the authority to make financial decisions for government institutions, and many have employees who concentrate solely on processing SBA loans. The SBA has resources online or in their local offices to help you find the best lender who will complete the application process in a timely manner.

Whether starting a new business or trying to expand an existing one, understanding the basic process of obtaining a SBA loan will help you make the right decision for your company. If you do decide to pursue this type of loan, remember to have the preliminary work done before you have your first meeting with a lender. Passion and a good idea are not enough when it comes to asking a bank for money. Still, the hard work will be worth the effort once you have the funds to make your dreams come true.

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