If you are planning on starting or expanding your business, you could turn to the best SBA loan companies to get funding to do what you want. You could borrow money to start a new business, or expand your already thriving one. You could use the money to buy new equipment or purchase real estate. Or supplement the money you use for your day to day operations. You could also renovate you work space and improve your building. There is a lot you can do with the money you can borrow. That is, if your loan is approved. Many are rejected for a lot of different reasons.
It can be difficult to gather all needed documents and apply for a loan, especially if you do not know what you are doing. So here is a simple overview of how the process works and what the requirements and documents you need to prepare when applying for a small business loan.
Loan Lenders
When you own a small business or is only starting one, it’s difficult to get a loan from a bank. They have a lot of requirements that new entrepreneurs do not all have. Good thing banks are not your only source for business loans. Here are other options that you could try if you think traditional banks will reject your loan application.
- Microloans are very similar to traditional bank loans, but you can get them from sources other than banks. There are alternative lenders that can offer you microloan. An example would be credit unions and an SBA loan company. Microloans are easier to approve because it is not a lot of money. Typically, you can microloan up to $50,000 only. The requirements are also easier to comply with. And if you have a poor credit score, most lenders for microloans can overlook it.
- Merchant cash advance is also called business cash advance. For this type of loan you could only borrow up to $10,000. This is easy to approve but mostly it has very high interest rates. But if you are having problems with your business’ cash flow, this is a quick solution. Check out this article about merchant cash advance services as an alternative funding option for your business.
- You could also borrow from friends and family, granted they have the money. The advantage to this is that, there would be no formal requirements needed and most of the time no interest rate will be put on your loan. If you have no history of nonpayment from your friends and family, getting a loan is very possible and easy.
- SBA loan providers. The US government has accredited several loaning companies to help businessmen, especially those who want to build a startup or start a small business. You can read this article to know how these SBA loan companies work.
- Credit card. You could use a business credit card to take out a loan to start your business. With the credit card you could make purchases to add to your inventory and this is will also build you a nice credit score. Provided that you don’t exceed your credit limit and you always pay your bills on time. The bank or credit company you will get your business credit card from will have eligibility requirements, so check those out first before you try this option.
Application Requirements
The most common SBA loan program is the 7(a) loan program. This is the program to provide loans to small businesses. The eligibilities and requirements are different depending on how you will use the money. But the document requirements are mostly the same. Here are the list of documents that you have to compile:
- The first thing you will need is the SBA loan application form which you can download from their site. This form will ask for your basic information like name, social security number, place of birth and the likes. Other information like criminal history and loan application history will also be asked in this application form.
- Your personal background. This is another form that you can download from the SBA website. This will ask for more personal and more detailed questions. Your fingerprints will also be checked depending on what the SBA loan company requires.
- Your personal financial statement. This form will ask you about your personal assets and liabilities. Your stocks, bonds and other investments will also be disclosed in this part of the application. If you own any real estate, you should also put it on the form. Even your life insurance will be asked.
- Financial statements from your business. This includes both the profit and loss statements and the projected financial statements. The best SBA loan companies will ask for these because they need to know how your business is doing and if you will be able to have enough money to pay for the loan.
- Include information on your business associates and affiliates that have a controlling interest in your business. Those who have stock ownership or franchise owners should be included in the loan application.
- Include a photocopy or picture of any business license that you have, including relevant permits. There are other lenders that will require even your driver’s license so include that too. Try to check out reviews of small business loan companies to know what companies are looking for.
- Income tax return. This is an important part of the loan application. Do not forget to affix both your personal and business income tax returns.
- The personal resume of the borrowers will be needed in the application to assess their character and experience when it comes to running a business.
- Business plan. Include a strong and solid business plan in your loan application. This is what SBA loan firms will use to see if the money you will borrow will be used properly and if it is really needed. The business plan will include an overview of your business. Also include a brief history of the company, the challenges you have faced along the way and what you did to overcome them.
Terms of Payment
The terms of payment will depend on what the agreement between the borrower and SBA loan lender is. Try to read and check out small business loan reviews to have an idea on what lenders’ typical terms of payment is. Another factor in what determines the length of small business loan is the type of loan that you applied for.
For mortgage loan, this is the type of loan you get if you plan to buy additional real estate. The length of time for this is usually five to twenty five years. The interest rate and monthly amortizations will depend on the contract that you will sign. Read the fine print carefully to make sure that you won’t be scammed or fooled into very high interest rates.
Another type of loan is the term loan, where you borrow money to buy new equipment or inventory. With this type, the life span of your loan is usually below seven years. All term loans should be paid within seven years because equipment are assets that quickly depreciate.
The third type is line of credit loan which is a short term loan and should be paid within a year. This kind of loan is usually taken out to supplement the working capital of a business. There are lenders that will allow annual renewal of this credit, if you are unable to pay it in the first year. Read reviews of SBA loan companies to know which companies are allowing annual renewal.
Considerations
Before you finish up your loan application, a personal guarantee might be required. The personal guarantee will give the lenders permission to take your assets in case your business fails and you are unable to pay the loan. This is like putting your own assets as collateral for the loan that you will get. The US Small Business Administration requires that all loans must be personally guaranteed by any borrower who has at least 20% ownership of the business.
The personal guarantee is where most borrowers fail to comply with. This is because most startup businessmen, do not have the assets to use as a personal guarantee. And if they have the money, why would they even bother applying for a business loan. If you are getting a loan from an SBA accredited lender, then a personal guarantee might be alright. But if you are planning on borrowing from alternative or online lenders, do not give a personal guarantee. You are not sure of them and you might be giving your assets away.
The risk of startups is that most do not get past the five year mark. If you are unable to pay your loan and you fail in the first five years, then all your assets might be taken by the lender. You will lose not just your business, but also your home and possibly retirement money.
Want to start a business? Take out a small business loan to help get your business off the ground. Check out reviews at CrowdReviews.com to know about the best SBA loan companies around.
Keith Moore
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