Everyone knows that the process of starting a business is not easy. You have a lot to consider, from your product ideas to the kind of loans you require initially. The latter can prove to be complicated for those who have not had this experience beforehand. Therefore, when it comes to finances, the kind of loan you take out will be a defining moment for your business. This is especially true for small businesses where there is not a lot of revenue or investment in the beginning. The financial and commercial needs of a small business are quite different than a multi-national corporation. So, when it comes to considering the best kind of loans for small businesses, an SBA loan is one of the best choices you have.
SBA loans come with low down payments and longer time periods for repayments. The reason they are preferred is that the interest rates are always reasonable and they are not specific to one business purpose. Business owners always have questions before the lengthy process of loan application begins. If you want to know what kind of an SBA loan is good for you or how to get an SBA loan and what your qualifications should be, this article can help you.
Different Kinds of SBA Loans
While all loan applications can take a lot of time and be complex, there is no reason to fret. As long as you have the right information and documents, your submission process will be easy and you will be able to qualify. First and foremost, to obtain your loan, you must assess the options you have. This gives you a greater possibility of getting approval as you will know which loan is directly in line with your business needs. The three different kinds of SBA loans that you can take advantage of are:
7(a) Loans
These loans will allow you to have working capital for many different uses. You will have to submit very low deposits and then take the benefit of flexible terms and viable interest rates over time.
504 Loans
If you want something more long term, these are fixed-rate options where real estate and equipment purchases can be made. Financing can go as high as 90% and you will have easy interest rates over time.
SBA Express loans
If you want an extension on your credit line, these loans will go up to $350,000. The decision-making process is fast and with the prompt reply, you can acquire quick capital with no further issues.
How to Qualify for SBA Loans
Not unlike standard loans, the eligibility process is quite comprehensive. To follow the given criteria, you will have to show lenders that you have good credit scores and a blemish-free financial history. You will have to make a down payment alongside additional collateral and then register your business in your country. Lending institutions also have their own requirements which you have to assess as they change over time. Besides these broad criteria, you have to bring along important documents to your loan meeting which will help qualify you. These include:
- A driver’s license or any government-issued ID
- A business check of your bank account
- Financial statements of the business
- A balance sheet and P and L statements
- Tax retune forms for you and the business
- Detailed business plans and strategies
- Detailed business debt schedules with proper figures
Once you have all of these at hand, you can move on to the next stage.
Assessing a Good SBA Loan Candidate
There are some other details that lenders will consider regarding the candidate before approving their loan. The specific assessments of the candidates are:
Business Size
The reason why SBA loans are for small businesses is that it is their criteria. They are funneling finances to small startups and entrepreneurs so the size of your business matters a lot in this context. If you have fewer than 500 employees, you will be able to qualify for it.
Prior Failed Financing Attempts
To obtain an SBA loan, you will have to give proof that you made previous attempts and they failed. Traditional sources like banks and other lending institutions will have to be reported.
Lender Restrictions
There are also additional requirements that the lender may put forward for you. These include the kind of loan you need and how much money you ask for, as lenders will have their own restrictions.
The Limitations of Using SBA Loans
There are some limitations that you prevent you from using an SBA loan, such as:
- Paying off any previous creditors who are secured, like a bank
- Collect funds for distribution to any principals that the applicant may have
- Replenish previous funding
- Encourage inconsistent activities or monopolies with the standards given
- Buying properties for sale
- Relocation for unsound business reasons
- Continue with a change of ownership unless it develops the company
How Long Does Getting an SBA Loan Take?
The application process, as well as the approval of your SBA loan, can take weeks or months even. The chance of actually getting approved if your finances are in good order and you have adopted a good business practice. If you are making considerable profits, you are likely to get approved. But there are some other things to consider.
Thinking Like a Lender
Why should this lender give you their money? You need to have a stellar application like you would at an important job interview. You will thus have to put forward a full understanding of the financial situation you are in and your assets. Cash flow and a good credit score come next, to ensure that the lender has no issues with you as a candidate.
The Amount You Need
How much money you need cannot be an approximate amount. To speed up the process along, you need to fully understand how much you need and then give an accurate value.
Learning From Old Mistakes
It does not matter if one lender rejects your application as long as you figure out the reason. When you move on to another lender, you will be able to address the deficiency you had and then do the right thing.
Conclusion
In essence, you will have to put in a lot of effort into the application process for it to go through smoothly. If you want to get the approval from a certain organization, assess the odds properly and take the given advice. This will allow you to have a proper frame of mind when you address your issues and needs as a business. Furthermore, for SBA loans to get approved, the traditional means of obtaining funding needs to be exhausted. So, make sure to take care of all these points and then send in your application.
