The major concern for today's small business owners is access to capital and credit. The SBA's loan guaranty programs provide a key source of financing for viable small businesses that have real potential, but cannot qualify for loans from traditional sources. SBA guaranties, provided through private lenders and nonprofit lending institutions, give small business owners access to the same kinds of reasonably priced, long-term financing available to large businesses by virtue of their size and economic clout.
Financing programs provided by SBA vary according to a borrower's financial need. SBA loans are made by private lenders and are guaranteed up to 85 percent. There are no grants offered by SBA to start or expand small businesses, only loans. There are three principal players in an SBA guaranteed loan - the small business borrower, the private lender and the SBA. First, the private lender determines whether a borrower's application is acceptable. If it is, the lender forwards the application and its credit analysis to the SBA. After SBA review and approves, the lender makes the loan and disburses the funds to the borrower to make payments to the lender.
Documentation requirements may vary; contact your lender for the information you must supply. Common requirements include the following:
When reviewing a loan request, the lender is primarily concerned with repayment. Loan officers judge loan applications based on what is commonly referred to as the five C's of Credit.
One key to a successful business start-up and expansion is your ability to obtain and secure appropriate financing. Raising capital is the most basic of all business activities. But as many new entrepreneurs quickly discover, raising capital may not be easy; in fact it can be a complex and frustrating process. However, if you are informed and have planned effectively, raising money for your business will not be a painful experience. This information summary focuses on ways a small business can raise money and explains how to prepare a loan proposal.
There are several sources to consider when looking for financing. It is important to explore all of your options before making a decision.
It is often said that small business people have a difficult time borrowing money. This is not necessarily true. Banks make money by lending money. However, the inexperience of many small business owners in financial matters often prompts banks to deny loan requests.
Requesting a loan when you are not properly prepared sends a signal to your lender. That message is: High Risk!
To be successful in obtaining a loan, you must be prepared and organized. You must know how much money you need, why you need it and how you will pay it back. You must be able to convince your lender that you are a good credit risk.
Terms of loans may vary from lender to lender, but there are two basic types of loans: short-term and long-term.
Generally, a short-term loan has a maturity of up to one year. These include working-capital loans, accounts-receivable loans and lines of credit.
Long-term loans have maturities greater than one year but usually less that seven years. Real estate and equipment loans may have maturities of up to 25 years. Long-term loans are used for major business expenses such as purchasing real estate and facilities, construction, durable equipment, furniture and fixtures, vehicles, etc.
Approval of you loan request depends on how well you present yourself, your business and your financial needs to a lender. Remember, lenders want to make loans, but they must make loans they know will be repaid. The best way to improve your chances of obtaining a loan is to prepare a written proposal.
A good loan proposal will contain the following key elements: