The story is as old as the most ancient economies: You have a fabulous idea that will make you rich, but you have no money to get started.
Still, even if your grand plan is no more extensive than owning a one-person Popsicle stand, U.S. Small Business Administration was created for entrepreneurs like you. One of its main missions is to make small business funding accessible so that your dream has a chance of shining through mega-corporate America.
What Kinds of SBA Loans Are Available?
The Small Business Administration guarantees the repayment of a variety of loans that can be used for initial startup funding, short-term cash flow supplementation, and other qualifying circumstances. The SBA backs four specific loans:
- 7(a) Loans: This popular financing option is generally used by business owners to cover startup expenses or to expand or purchase existing businesses.
- 504 Loans: These loans are issued so that companies can purchase commercial property or expensive fixed assets.
- Microloans: Microloans are quick $50,000 cash infusions with short repayment terms.
- Disaster Relief Loans: The SBA backs special loans to help companies recover losses after a declared disaster.
Established operations with a history of strong cash flow may also be eligible for business lines of credit offered by the SBA.
Where Should I Start?
The SBA guarantees repayment if you default on your obligation and can help you find a partnering lender, but you must apply for the loan directly from a financial institution. As with most small business funding requests, you’ll need to be prepared with submission documents that prove your company’s existence, a solid business plan, and your ability to repay the loan.
Your chosen lender will attempt to approve a conventional commercial loan at a competitive rate with your current qualifications. If that isn’t possible, it will apply for backing from the SBA provided that you qualify as a small business under your industry’s established annual revenue or personnel size limits.
Do I Meet the Requirements?
The SBA loan program exists specifically to help businesses that fall short of conventional loan eligibility requirements. Still, your loan potential depends on your company’s history and financial stability, and your personal credit score.
Essentially, if you’re establishing a business and your personal credit history negligible, lenders are unlikely to approve your loan without significant collateral, government backing or not. On the other hand, if your company has been operating at a steady profit for years and you need a short-term microloan to finance a marketing campaign, you could have an excellent chance of qualifying for small business funding without the SBA’s guarantee.