Getting a start-up business loan is generally difficult. Some people say it's almost impossible for startups to get loans. However, getting a start up business loan is doable. This guide will illustrate how it can be done by securing a Small Business Administration (SBA) start up loan.
SBA loans are federal small business loans. In practice, they are similar to using an FHA loan when buying a house. The borrower must still use a traditional lending institution. This federal program just makes it easier for banks to approve the borrower. The government offers more protection for the bank than if the bank were to approve the loan independently. Because of this government assistance, getting a start up business loan is more attainable. But beware, there are many government regulations which need to be addressed.
Different Types of Start Up Loans for Small Businesses
Before diving further into the benefits and pitfalls of SBA loans, let's mention other types of start up business loans.
As touched on earlier, a person can get a small business loan without the help of the SBA. One can also fund their startup using old-fashioned methods of fundraising. Credit cards and asking friends and family for money may be okay in many situations. A modern way of sourcing capital is through crowdfunding. There are also plenty of business loans to browse on our site. Now, let's continue examining the SBA loan option.
Government Small Business Loans
Do not assume federal small business loans are easier to obtain than regular commercial loans. There are many potential roadblocks with this type of loan. The SBA has many government standards to follow. There are a lot more rules, forms, and regulations with an SBA loan. With all these obstacles to overcome, choosing the bank to provide an SBA loan isn't easy. With commercial loans, lending officers just need to focus on you and the bank. In an SBA situation, the officer must focus on you, the bank, and the United States government.
However, government small business loans are an attractive option for many. These loans include the following perks:
- Loans can be written up to $11.25 million
- Up to 90% financing
- Fixed and variable rates available
There are many SBA loan options available for small businesses. The SBA gives general small business loans (7a), microloans, real estate and equipment loans, and disaster loans. See what options local banks offer.
Getting Started with SBA Loans
As discussed earlier, SBA loans are government-backed loans distributed by private lending institutions. There is a lot of paperwork. Don't let it be intimidating. Once the paperwork is complete and the loan has been approved, the perks of an SBA will be worth the effort.
A hopeful borrower must first provide an executive summary. In this step, it's important for the borrower to explain their background and the future of the business. It's the borrower's job to explain how their business will benefit from receiving this loan.
A business profile must also be created. Make sure to include the type of business, location, product or service, number of employees (if applicable), proposed future operation, competition, customers, and suppliers. A write-up about the company's management experience is also needed. The official loan request form must be completed. A loan repayment statement must be completed. In which, the borrower explains how the funds will be repaid. SBA Form 4-a must be turned in as well. It states what collateral can be used against the loan. A personal financial statement must also be completed. This is form 413. Business financial statements must be submitted. The final document is a statement of projections. Project far enough out to where the company begins to turn a healthy profit. Projecting out more than one year is typical.
Final Thoughts about Government Small Business Loans
SBA start up loans are a good option for small businesses. Despite the mountains of paperwork, there are many perks which counteract the monotony. It's not impossible for a startup to get a loan. It just takes dedication.