Small Business Administration (SBA) Loans
As a new entrepreneur looking for capital, one of your first options for a loan will be the SBA, or to be exact, asking for an SBA-backed loan. SBA loan applications are made through a bank. The SBA guarantees a loan to the bank, so in case the borrower Business defaults, the bank is guaranteed a portion of the loan by the SBA. (You are still liable for Business the loan, so your obligation does not go away) This makes it easier for banks to lend to budding entrepreneurs, but it does not mean that the bank can lend indiscriminately. The bank will analyze the application to protect its interest as well as the SBA's.
The SBA does not lend directly to the business owner. It is important that the bank you are working with is knowledgeable about SBA loans, as it will initially process your application, not the SBA. The SBA will review the application once the bank approves it.
What will the bank look for in your application?
1. Good Credit Score. This is a very important factor in the consideration for a loan, but not the only one. If your score is not good right now, work on improving it. Although good credit is a key factor for getting a loan, is not the only factor. If you don't have perfect credit, you can mitigate it by providing a thorough business plan, collateral, a higher co-investment in the project, a cosigner, etc. You will have to explain any outstanding issues with your credit. Moreover, lenders have different appetite for risk (large commercial banks are usually more conservative), so you may be able to find a lender that will work with you.
2. Collateral (security for loan). In some cases a good credit score and down payment are enough to secure a loan. However depending on the amount of the loan, you may also have to offer collateral. You can use your house, stocks, or any other major possession as collateral if the bank requires security in the event you cannot pay back the loan.
3. Experience. The relevant experience of the business owner is an important factor for the loan package. Banks feel more confident in giving out a loan to business owners who have relevant experience in the business that they are starting, such as a dentist opening a private practice.
4. Owner's Investment. If you are forming a new business, be prepared to invest a certain portion of the start-up costs personally. Lenders rarely finance 100% of the business. They will expect you to raise 20 to 40% of the investment yourself. The higher your personal investment in the business, the better the loan application looks to the lender.
5. Good Business Concept or Plan. A good business concept that is believable and relatively conservative. Lenders are conservative organizations that do not like to take large risks.
6. Capacity to Manage and Pay. The business should be able to generate enough cash to pay back the loan installments.
7. Guarantees. The lender will look at how the loan can be secured. He or she will give importance to the individual's personal financial statement and see if the loan can be secured against personal or business assets.
Applying for a loan and Writing a Business Plan
When applying for a loan and writing a business plan, make sure your financial projections are correct. Do your research. Know your business. It is surprising to see the number of entrepreneurs who do not pay enough attention to the financial aspect of the business. Paying close attention to the financial details will determine whether your business will survive.
Although most banks want to help entrepreneurs fund and expand their businesses, their primary responsibility is to make money from the loans and minimize their risk. Just because you have a great idea and are motivated to see it through, you may not get a loan. In fact, banks are very careful with innovation; they are conservative institutions that tend to lend to "tried-and-true" businesses. Whenever you submit your business proposal, always ask yourself, "What would make this a good deal for the bank? What assurances (aside from my good credit and great idea) can I give to the bank so it will get its money back plus interest?"
Gaizer.com is a resource for starting, operating and financing a small business in New York. The site offers step-by-step guides for forming a company, financing information, Taxes, Insurance, Business Plans and other operational concerns. The site also includes useful resources for entrepreneurs.
The Boon That Is The Small Business Administration
If you're looking to start your very own business and are on the market for a loan, then you should thoroughly understand and consider all of the services rendered by the Small Business Administration. So, what really is the Small Business administration (SBA)? It is an agency which was first established in 1953 and it works without any interference from the federal government. It has the responsibility of providing assistance to American small business in the following four areas:- Management
- Advocacy
- Procurement
- Financial aid.
It provides these services through its business loan programs, investment programs, disaster loan programs and even bonding (though just for contractors). Out of all these programs, the most significant one is the business loan program.
If you are looking for finance and funding for your business, then one of your best options is the SBA, they have a variety of programs, to suit the needs of every businessman.
Debt Financing
If you own a small business, then the SBA will not provide you with a direct loan, they'll go one step ahead and give you all the guidelines for the loans you apply for. You can subsequently approach partners, microfinance institutions etc, for the loan. The SBA will vouch for you, that the loan will indeed be repaid.
Thus, when you are applying Business for a loan to the SBA, you are in fact, applying for a commercial loan, custom made according to the requirements of the SBA and of course, with a seal of approval from the SBA. But, there's a catch, you won't be able to get these loans if you have some other source of financing on reasonable conditions and terms. The policies of the SBA are subject to change in case the Government decides to change its fiscal policy.
Equity Financing
Everyone is a bit wary of the term Venture Capital funding, but with the Small Business Administration by your side, you can be rest assured that you won't be venturing into troubled waters. The SBA provides venture funding (by means of a partially public, partially private investment partnership) to small businesses. The funds are basically privately owned, but are managed by the SBA as well as licensed and regulated by them. The terms and conditions are reasonable, unlike other venture capital firms, but the SBA may choose to limit its investments to only legitimate small businesses.
Surety Bonds
The Bonding Program of the SBA is specifically designed with the aim of helping small venture contractors acquire surety bonds; often these business contractors cannot acquire them through the conventional channels. What is a surety bond? It is basically a bond signed between three parties - the contractor, a surety (someone who guarantees that the debt will be paid back) and of course, a project owner.
If the contractor is, for some reason, not able to see the contract through its successful completion, the surer takes on all of his responsibilities. So, the Small Business Administration is really a boon, and has helped many small business flourish over the years, so do consider approaching it for kick starting your business venture.
Visit http://www.ventureworthy.com/Small-Business-Administration.asp to find more useful information on Small Business Administration.
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