Small Business Loans
Small Business Loans:
The Small Business Association (SBA) offers many types of business loans but the most common, basic and most utilized type is the small business loan. It is designed to assist for profit businesses that aren’t able to get financing from traditional lenders. Most American banks, as well as non-bank lenders, participate in the SBA program.
The lending program has a diverse variety of small business financing needs in order to accommodate a wide range of applicants. The SBA has variations of the small business loan which have further criteria for eligibility. Generally the eligibility requirements that must be met include:
- SBA size standards
- A for-profit business
- Must prove financial need and not currently have internal resources such as business or personal funds
- Must be able to demonstrate repayment
The loans can be no longer than 25 years for real estate and seven years for working capital. Depending on eligibility, business type, ability to repay and financial need, the maximum loan amount can be as high as $2 million.
The application process goes something like this:
The first step should be to assess the financial needs of the company and the amount of loan that the company will be seeking. Ask yourself if the business needs start up cash or inventory. Is the loan to start a company or expand an existing company? Is the need urgent or is the loan for cushioning? How strong is the business plan?
Once the decision has been made about where the funds will be used and how much will be needed, it is important to assess the current credit status of the person or business seeking the loan. If there are credit report concerns or errors, attempt to clean them up immediately. Make a plan for discussing the errors and solutions so that the creditor will have an understanding of the situation. In most cases banking institutions will work with a borrower if there are explainable concerns on a credit report.
Make sure that the loan application is clear, concise and complete. The packet should contain the following:
- Executive Summary- a brief statement explaining the company, the nature of the business, the amount desired for the loan, how the funds will benefit the business and how the loan will be repaid
- Business profile-written description of the type of business, location, number of employees, proposed future operation, competition, customers and suppliers
- Management experience-include the resume or each key owner and manager
- Loan request form (SBA form 4)-description of how the loan funds will be used
- Loan repayment-written description of a detailed repayment plan
- Collateral-(SBA form 4a) list real assets or other property to be held as collateral
- Personal financial statement (SBA form 413)-financial statements are expected from all owners, partners and stockholders which should include, recently updated within the past 90 days, personal assets, liabilities and monthly payments as well as federal income tax returns for the past three years
- Business financial statements-existing businesses should supply complete financial statements for the past three years. New businesses should supply a projected balance sheet and income statement
- Proposed business plan-pro forma balance sheet reflecting both equity and borrowed funds