Starting a business is never easy because of the things you need to consider. You need to think of what you want to offer and where you want to build your business. However, you can’t accomplish these things if you don’t have a budget.
Money plays a vital role in the business. Without it, you can’t give your customers the satisfaction that they want. Moreover, you can’t improve your service without the funds. However, there are moments when your budget is cut short. In times like this, you need to get the help of a financial institution. These companies will provide the funds that you need for your business.
Unfortunately, there are many loan sharks out there. Yes, they could give you the amount that you ask for, but you have to pay your debt on time. Otherwise, they will go to your building and look for you.
Fortunately, you don’t have to deal with these lenders anymore. There are financial companies that understand your situation. You only need to find an organization that provides an SBA loan program.
There are many lending firms backed by the Small Business Administration (SBA). They provide small business loans that fit your needs. But before you take advantage of one of these programs, there are a few things you need to learn about it.
This post will discuss some facts about this financial support. Furthermore, it will give you reasons and some tips to follow when getting an SBA loan application. So without further ado, let’s begin the discussion!
What You Need to Know About the SBA Loan Program
So what is SBA loan program? The Small Business Administration is an agency backed by the Federal Government. It started in 1953, aiming to help small-scale enterprises. For this reason, many people think that it’s where they can get the funds that they need for their businesses.
The truth is that they only provide a standard SBA guideline to financial institutions associated with them. Therefore, you still need to visit a small business lending company to get this loan.
As mentioned earlier, there are many small enterprise loans that you can get. Nevertheless, the most popular choices are the SBA 7a and the SBA 504 loan programs. Let’s discuss the similarities and differences between these two.
The 7a loan is a program that is perfect for everyone. This credit lets you borrow money up to $5 million. Moreover, the payment term varies, depending on the amount you owed.
So what does the SBA 7a loan program offer? The funds provided by this loan can be used in different ways. You can use it for buying real estate and pieces of equipment. Furthermore, you can use it for paying your pre-existing debts. You only need to present your credit history and your business plan to get this loan.
The SBA 504 program, on the other hand, is ideal for those who want to expand their businesses. Compared to the 7a loan, you can pay your debt up to 20 years, regardless of the amount you borrowed. However, you need to prove to them that you are capable of paying your loans. Otherwise, they won’t approve your application.
Reasons for Getting an SBA Loan
There are several reasons why some business owners prefer other funding sources than this loan. However, the primary reason is the credit score. Nonetheless, it should not hinder you to get such loans because there are programs that don’t need your credit background. You just have to read reviews of SBA loan programs to know where to get them.
There are several reasons why you should get the help of this loan. First is the training program. Generally speaking, business loans do not provide proper training to their borrowers. It only gives the amount you want to borrow. It’s up to you how you want to spend the funds.
With an SBA lending firm, not only are you getting the funds that you need but also training. In this program, you will learn how to use the money you borrowed for your business. Moreover, the company will teach you how to market your firm. In other words, it will help you throughout your starting process.
The second reason is the consultant. It is the only financial service that has an adviser. Their role is not only to examine the background of the borrower, but also to give advice. Because of the number of loan programs available, it’s quite hard to decide on what to choose. With their help, you will get the best SBA loan programs for your business.
Third is the security of the loan. Many entrepreneurs go for alternative business funding because of the quick process. Though the procedure is fast, your loans are unsecured. Meaning, the interest rate can go higher unless you pay your debt on time.
Small enterprise loans also have interest rates, and it increases too. However, the percentage rate is not as high as unconventional loans, but not as low as traditional funding either. The reason is the interest rate limit. Though SBA providers charge differently, they should not exceed the limit imposed by the SBA agency. With this service, you can pay your debt without a problem.
Last is your payment option. Small enterprise funding services offer payment choices to their borrowers. First is the use of collateral. It serves as a guaranty to the lender if you fail to pay your debt on time. Yes, it is risky because you could lose your property, but it encourages you to meet the deadline.
The second option is the flexible term. Compared to the previous choice, this one doesn’t have a deadline. Nevertheless, you must try your best to pay the SBA financier immediately to increase your credit score.
5 Tips You Must Never Forget When Getting an SBA Loan Program
According to NerdWallet.com, only half of the SBA loan applicants received the funds that they asked for. This survey was conducted by the Federal Reserve Banks of Philadelphia, New York, Cleveland, and Atlanta in 2014. Why is that so? There are several reasons for this, but the primary reason is that most of them don’t know what to prepare.
If that’s the case, then you don’t have to worry. You simply need to follow the tips mentioned below.
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A Lot a Time and Energy for This Loan.
When you get a small loan for your business, it means you have to do a lot of paperwork. Hence, you need to save time and energy in doing a business plan and preparing the necessary documents. You need to concentrate on these tasks as it will be your resort to get the loan.
However, creating a business concept is not easy, especially if you are a new business owner. Nonetheless, there are articles dedicated to budding entrepreneurs. To know how to create a compelling business plan, go to SBA.gov.
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Get Ready for All the Fees You Have to Pay.
Many people think that this funding solution can help you save money because of the lower interest rate. That may be true, but it depends on the comparison you make. If you compare it with alternative loans, then the SBA funding is much cheaper. However, if you compare it with traditional lending, then this financial help is more expensive.
Hence, if you choose this funding source, then you should prepare for all the fees you must pay. The charge varies, depending on your chosen industry. For example, if you want to build a dental clinic, then the interest rate is around 3%, excluding the third-party expenses.
Nevertheless, you can still get this loan without fine. You only need to choose the pre-payment penalty. However, this advantage is not for everyone. You can only use it if your payment term is less than 15 years.
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Small Enterprise Funding Has Higher Interest Rate Than Traditional Loans.
As mentioned earlier, SBA financing is more expensive than conventional lending. Nonetheless, the interest rate of this loan has a limit. For instance, if the payment term is less than 7 years, the maximum interest rate is 2.25%. If the deadline of the payment is more than 7 years, then the highest interest rate is 2.75%.
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You Must Provide Additional Collateral.
Sometimes, it’s not enough to use your business as collateral because of its market value. If that’s the case, then you should include your property as your additional collateral. In that way, it will be easier to get the loan.
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You Have to Wait Before You See the Funds.
The financier doesn’t give you the full amount once he approved your loan. You have to submit some requirements before a payment is made. Thus, you need to read the prerequisites of your chosen loan program before you apply.
These are the 5 things you must remember when getting a loan for small enterprises. These pointers will help you understand how this financial assistance works. Moreover, it will prepare you for your future trials as a business owner.
Do you want to know what SBA loan program to choose? Visit our website, CrowdReviews.com, and read our reviews on small business loans.
Jeev Trika
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