Business Loan/Financing

The business loan may be used to start or grow a small business or to purchase commercial real estate. There are always key questions to ask before accepting any loan offer and this is especially true with the business loan. The business loan sometimes uses the business as equity and always uses the name of the business so failure to repay a business loan threatens the business itself, in terms of actual loss or loss of credibility. For this reason, the business loan should be fully explored before being accepted.

SBA's Role in Providing Financial Assistance

The U.S. Small Business Administration (SBA) provides many services to small businesses including advocacy, management, procurement and financial assistance. Under its Congressional mandate, the SBA assists the nation's small businesses through a number of programs and efforts. The SBA helps new or growing businesses meet their financial needs and through its work this agency helps to preserve the nation's free enterprise system and to strengthen the economy. Many small businesses find that they need assistance when it comes to financial matters. SBA Financial Assistance is proved through four types of programs: SBA Investment programs, Business Loan programs, Disaster Loan programs and Contractor Bonding.

The SBA licenses privately owned and managed investment firms through the Small Business Investment Company (SBIC) program. This program forms a partnership between the government and the private sector economy. SBIC's provide venture capital to small businesses that show potential for growth and prosperity. Profit motivates SBIC's to invest in small businesses.

The SBA's Business Loan programs works through private lenders, community development organizations and micro-lending institutions to provide small business loans. The SBA sets the guidelines for loans for which they provide a guaranty of repayment. There are three loan programs available through the SBA: the 7(a) loan program, the prequalification loan program and the 504 loan program. The 7(a) program and the prequalification program offers guarantees to private lenders that money borrowed will be repaid. Through the 504 program, the SBA works with certified development companies to help finance businesses that are promoting job growth or meeting public policy goals.

The SBA loan programs provide borrowers with longer repayment terms and larger loan amounts than are traditionally available to small businesses. Many business owners find available cash flow to be lacking at one time or another. For them an SBA guaranteed loan may be the answer and possibly the best way of obtaining long term financing. SBA guaranteed loan terms typically range from 7 to 25 years and are fully amortized depending on the purpose of the loan.

The SBA provides disaster assistance to residents within a declared disaster area. This program helps homeowners and renters to rebuild their lives. Loans can be used for both personal and real property, for rebuilding and protection against future damage. Even the refinancing of damaged property is possible through this program.

The Surety Bond Guarantee (SBG) program provides small and minority contractors with the opportunity to bid on projects. The SBA guarantees bonds for contracts up to $2 million. This program gives sureties an incentive to provide bonding to small businesses. The guarantee provides that should a contractor breach the terms of a contract the SBA will assume a predetermined percentage of the loss.

The SBA is charged with the responsibility of assisting American small businesses in financial matters. The success of a business weighs deeply in its financial ability. Not only does the SBA provide financial opportunities, they also offer education and consulting opportunities for new and expanding businesses. Many now successful businesses say that without the SBA, they would not be where they are today.

Applying for a Loan -Banks and lenders are in the business of making money. They will only lend to businesses that show that they are able to repay. The Small Business Administration says that there are five "C's" of credit that banks consider when they review loan applications: capacity, capital, collateral, conditions and character.

Loan Prequalification Program -The first steps to securing small business financing start long before loan applications are filled out. Many business owners find that when applying for loans there is a lot of unexpected information requested. Precious time can go by while waiting to find out if a business plan and loan application is complete and viable. Small business' often cannot afford to make mistakes in their applications - and often every day waiting makes a big difference in a business' success.

Financing Basics -Poor management is often blamed for the failure of many businesses. Part of the lack in management is related to insufficient business funding. When a business runs out of money what can be done? Often, applying for a loan is a long process that many businesses find that they cannot wait out. The best way to protect a business from inadequate financing comes from thorough planning and financial education.

Estimating Costs -Congratulations, your new business is beginning to take shape. But before you can apply for the loans you need, you must first determine the amount of funding you will need. You will be spending plenty of money even before your business is up and running. The most common mistake many business owners make is underestimating start-up costs, often referred to as being "undercapitalized." The expenses for the first several months of your business should be well planned. This not only helps you become prepared, but it shows potential lenders that you are serious.

Loan Programs offered by SBA:
Certified Development Company (504) Loan Program-The Small Business Administration (SBA) works with various organizations and business to promote job growth and economic development. The SBA Certified Development Company (504) Loan Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. The SBA works with Certified Development Companies (CDC) and private lenders in providing the loan program to small businesses.

Basic 7(a) Loan Program -The 7(a) loan program is the most utilized loan program through the SBA. Loans can be provided for land and buildings, equipment and supplies, working capital, refinancing of unreasonably termed debt and the purchase of existing businesses.

Home and Personal Property Disaster Loans -Personal property, such as clothing, furniture and automobiles, that is lost in a disaster can be repaired or replaced with a Personal Property Loan through the SBA. This loan gives a homeowner or renter up to $40,000 to help replace non-luxury items. Items such as antiques, boats, planes and furs do not apply.

Micro-Loans-The Small Business Administration (SBA) Micro Loan Program provides small loans to new businesses and growing small businesses. These loans are awarded to small businesses that demonstrate the lack of adequate capital or funds to fully finance the business' needs. The Micro Loan provides funding with flexible terms and conditions to meet business needs. The loan can be used for working capital, equipment and machinery and inventory.