Small Business Loans & The SBA

As the owner of a small business, you know there are struggles to cover all of the expenses that arise on a daily basis. The SBA (Small Business Administration) and local banks joined together in the middle of the last century to provide small business loans with the government, in essence, co-signing your loan with you.

It is well known that small business is the lifeblood of any economy and governments are involved in providing funding, on a loan basis. The U.S. used to loan the money directly to small and new businesses, however, it has now fallen to the local banks to actually make the loan with the SBA providing insurance that will cover up to 90% of the loan amount in the case of a default.

Small Business Loans - Some Pros & Cons

This may sound good to you if you are looking for a loan for your small business, however, you must be aware that you are going into business with the government as a partner. When you go to the bank, be sure that you have done your homework as to what is going to be required of you. You will need good personal credit and assets that you are willing to pledge as well.

The local bank will make it sound as if you are in the position of asking for the SBA loan by yourself – with no co-signer (whereas the government is guaranteeing at least 90% of the loan.) You will still have hoops to jump through as you would for any loan, but the government has mandated a certain percentage of the loans made are through the SBA, thereby increasing your chances of securing a loan. There is a relatively high approval rate so your chances are very good to get one.

One thing you should think about is the length of the loan. There are small unsecured loans that are available for $50,000.00 or less with very little paper work. If this is an amount that you are looking for, it is not taking long to fund these types of loans.

SBA Minority Loans

If you are a female-owned business or other minority, your chances of approval are increased. If you have real estate or stocks and bonds to use as collateral, your chances improve even more. Small business loans are available in the community as well as through the SBA. Banks are loaning to small and relatively new businesses that are well documented.

Business Plans

For a larger loan, you will need a business plan and cash projections for at least the next three years as well as financials prepared by an accountant or CPA. You will need to be prepared to answer questions that any banker or loan officer may want to ask you. They may appear to be nosey, but they are looking to see how you react as well as gathering information regarding their assessment of your ability to repay the small business loan you are asking them to make.

Overall, put together all the relative documents, put on a business suit and a smile. Do not act as if you have all the answers, but understand that you are looking for a working relationship with a bank and a banker. Once you find the right banker, getting a small business loan is easier.