SBA Small Business Loans Explained; Availability, Eligibility and the Application Process
by Caron_Beesley, Community Moderator
- Created: January 18, 2010, 10:14 pm
- Updated: May 5, 2011, 4:27 pm
With 2009 behind us, it's pleasing to see some indicators that the government-backed small business loan market may be trending in the right direction. In early January 2010, *CNN Money reported that the Small Business Administration's flagship lending program - the Basic 7(a) Loan Program - backed 37% more loans in its latest quarter than it did during the same period in the year prior. That's $3.8 billion spread across 12,393 loans.
If you have struggled to get financing in the past, or are thinking of venturing into small business loan territory for the first time, here are some pointers.
What is a Government-Backed Business Loan?
First, let's dispel one myth - the government does not (generally) directly provide business owners with loans . Instead, it provides a guaranty to banks and lenders for the money they lend to small businesses owners (and you'll find information here on what the SBA officially considers 'small'). This guaranty protects the lenders interests by promising to pay a portion (the percentage varies by the type of loan) if the business owner defaults on the loan.
Essentially government-backed small business loans alleviate the risk associated with lending money to business owners and entrepreneurs who may not qualify for traditional loans - thus opening up lending opportunities to thousands of entrepreneurs, start-ups, growing businesses, minorities, and veterans.
What Type of Loans are Available?
There are quite literally hundreds of government-backed loans, administered by the Small Business Administration, each developed to suit the needs of your particular business - whether you need start-up funds, export-assistance funds, are struggling to pay off debt, or are a veteran seeking to start and grow your business.
For more information on some of the myths that surround government small business finance programs, read 'Grants & Loans: Break Through the Myths & Find the Right Financing for Your Needs'. It also will help you understand which loans and grants you might be eligible for. The SBA Loans Guide from Business.gov also provides information and direct links to information about commonly requested SBA programs.
Is My Business Eligible for a Loan?
While each loan has its own specific qualification criteria, you will need to talk to your bank or lender about your eligibility. But before you set up your first appointment with a loans officer, use this Small Business Loans and Grants Search Tool (from Business.gov) to help you build a picture of what government-backed financing your small business might be eligible for based on your business profile and needs.
Your local SBA District Office can also provide guidance and advice about loan eligibility and application requirements. They should also be able to point you to SBA lenders in your area.
While most banks and lenders offer SBA loans, you would be advised to approach a bank that been through this process before and is also either a Certified Lender or Preferred Lender. That certification means they have a contractual relationship with the SBA and participate in the Certified Lender (CLP) / Preferred Lender (PLP) programs - in other words, they have a proven track record of processing SBA-backed loans and know what they are doing!
And don't necessarily think you need to stick to the big name banks. In fact, some of the larger banking institutions were hardest hit by the recent economic collapse and slowed their business borrowing significantly. Many smaller community banks and credit unions can offer local market knowledge and may be more flexible to your needs. Take a look at this Business Week slideshow (based on SBA data), which lists the *Top Small Business Lenders of recent years.
The Loan Application Process
Needless to say each SBA loan program has its own eligibility criteria and application process. But at the end of the day, you will need to gather and prepare similar loan application documentation - regardless of the program. From personal and business financial statements to old tax returns, this SBA Application Checklist lists what you need to prepare in advance of your loan application. Read '*How to Prepare a Loan Proposal' for more tips.
- Business.gov's Small Business Loans and Grants Guide - The government's one-stop shop Web gateway, where you can find more information, videos and podcasts on loans and grants.
- Loans and Grant Advisor - The Loans and Grants Advisor Blog on the Business.gov Community is the official word on government loans and grants for small businesses.
- Tips for Getting Your Small Business Loan Request Approved (Even in Today's Economy)
- Managing Small Business Debt - Government Loans and Refinancing Lifelines
- *Securing a Small Business Loan Quickly (Allbusiness.com)
- *Women Business Owners - Finding the Right Loans, Grants and Financing (Allbusiness.com)
- National Small Business Week: New Interest-Free SBA Loan for Small Businesses in Financial Hardship
- Financing the 'Greening' of Your Small Business
- When the Worst Happens - Disaster Assistance Loans, Tax Relief and other Lifelines for Your Business
*Note:Hyperlink directs reader to non-government site.
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General small business tips and tricks.