Small Business Loans: You're Not Alone
Other than success, what do America Online, Apple Computer, and Federal Express have in common? When they were just fledgling companies, all three were boosted by a loan backed by the Small Business Administration (SBA). The spirit of the SBA program is to help small companies that are poised to become mainstream employers and contribute to the community. A bank loan, secured by the SBA, can boost your small business, too.
SBA backing makes an enormous difference. Banks have a great deal more flexibility when making a small business loan when it’s secured with an SBA guarantee. This flexibility can result from increasing the number of years to repay your loan, reducing the down payment requirement, or modifying the collateral requirements.
Big money for small businesses
The SBA guarantees as much as 85 percent on loans of up to $150,000 and 75 percent on loans of more than $150,000 made by local banks to qualified small businesses. Nationwide in 2005, the SBA guaranteed nearly 105,000 loans worth $20 billion. The SBA’s portfolio of business loans, loan guarantees, and disaster loans are valued at more than $77 billion. Including a $12.3 billion venture capital portfolio, this makes SBA—with help from local lenders—the nation’s largest financial backer of small businesses.
Applying for an SBA loan may seem daunting. Luckily, the process actually begins and ends with a visit to your local bank. After all, the lender, not the SBA, provides the actual loan. When you apply for an SBA loan, you deal face-to-face with your loan officer, not the federal government. And if you’re properly prepared and your bank’s an SBA Preferred Lender, the process can move quickly.
Preferred Lenders provide expertise in the various SBA programs and regulations, and are active supporters of small businesses. They have unilateral power to make credit decisions on behalf of the SBA—the loan application is done on bank paperwork, rather than on the SBA’s, speeding the process by weeks. The approved Preferred Lender loan goes to the SBA only for an eligibility review, which usually takes just a day.
Making the grade
The SBA uses two widely established standards in determining size requirements of eligibility. Industry categories are divided into manufacturing, wholesaling, services, retailing, general and heavy construction, special trade construction and agriculture. Many exceptions exist and standards vary between the industries.
Other requirements are determined on an individual basis and include many of the same criteria reviewed for any loan. Regardless of the loan type, you can expedite the process by compiling an application package before you visit your loan officer. In general, the package should include:
• A brief history of your business. This is the time to pat yourself on the back. What have you learned and accomplished since you started your business, or in your career before you became an entrepreneur? What are your goals, and how do you plan to reach them?
• The purpose of the loan. How much? What’s it for? State the terms you’d prefer and your plan for repayment.
• Complete historical financial statements. Most lenders need three years plus current year-to-date.
• Schedule of existing debt, if applicable—amount borrowed, balance owed, monthly payment, interest rate, collateral pledged.
• Aging of accounts payable and receivable, if applicable.
• Projections of income, expenses and cash flow.
• Short resumes on key management.
• Personal financial statements of owners.
The packet contents aren’t Shakespeare, but do take the time to cross your t’s and dot your i’s. Everyone’s judged by their ability to communicate professionally.
Regardless of the type of SBA loan you qualify for, your local lender will answer your questions and help you to take the next step in your business’s success. And if, like Apple Computer, you become another SBA success story, you’ll find yourself in business for the long run. tpw
SBA backing makes an enormous difference. Banks have a great deal more flexibility when making a small business loan when it’s secured with an SBA guarantee. This flexibility can result from increasing the number of years to repay your loan, reducing the down payment requirement, or modifying the collateral requirements.
Big money for small businesses
The SBA guarantees as much as 85 percent on loans of up to $150,000 and 75 percent on loans of more than $150,000 made by local banks to qualified small businesses. Nationwide in 2005, the SBA guaranteed nearly 105,000 loans worth $20 billion. The SBA’s portfolio of business loans, loan guarantees, and disaster loans are valued at more than $77 billion. Including a $12.3 billion venture capital portfolio, this makes SBA—with help from local lenders—the nation’s largest financial backer of small businesses.
Applying for an SBA loan may seem daunting. Luckily, the process actually begins and ends with a visit to your local bank. After all, the lender, not the SBA, provides the actual loan. When you apply for an SBA loan, you deal face-to-face with your loan officer, not the federal government. And if you’re properly prepared and your bank’s an SBA Preferred Lender, the process can move quickly.
Preferred Lenders provide expertise in the various SBA programs and regulations, and are active supporters of small businesses. They have unilateral power to make credit decisions on behalf of the SBA—the loan application is done on bank paperwork, rather than on the SBA’s, speeding the process by weeks. The approved Preferred Lender loan goes to the SBA only for an eligibility review, which usually takes just a day.
Making the grade
The SBA uses two widely established standards in determining size requirements of eligibility. Industry categories are divided into manufacturing, wholesaling, services, retailing, general and heavy construction, special trade construction and agriculture. Many exceptions exist and standards vary between the industries.
Other requirements are determined on an individual basis and include many of the same criteria reviewed for any loan. Regardless of the loan type, you can expedite the process by compiling an application package before you visit your loan officer. In general, the package should include:
• A brief history of your business. This is the time to pat yourself on the back. What have you learned and accomplished since you started your business, or in your career before you became an entrepreneur? What are your goals, and how do you plan to reach them?
• The purpose of the loan. How much? What’s it for? State the terms you’d prefer and your plan for repayment.
• Complete historical financial statements. Most lenders need three years plus current year-to-date.
• Schedule of existing debt, if applicable—amount borrowed, balance owed, monthly payment, interest rate, collateral pledged.
• Aging of accounts payable and receivable, if applicable.
• Projections of income, expenses and cash flow.
• Short resumes on key management.
• Personal financial statements of owners.
The packet contents aren’t Shakespeare, but do take the time to cross your t’s and dot your i’s. Everyone’s judged by their ability to communicate professionally.
Regardless of the type of SBA loan you qualify for, your local lender will answer your questions and help you to take the next step in your business’s success. And if, like Apple Computer, you become another SBA success story, you’ll find yourself in business for the long run. tpw