How to Find SBA Loans
Many entrepreneurs have a great idea for a startup, but have difficulty securing funds do to inexperience or lack of capital. The U.S Government’s SBA (Small Business Administration) Loan Program is designed to help would-be small business owners who are in this exact position. We’ll look at how the SBA works, and some tips to successfully find and land an SBA loan.
The SBA Program
In and of itself, the SBA is not a financier. It works with financial institutions to provide funds for borrowers who are not able to acquire them through traditional means. One of the most popular types of SBA loans is the 7(a) Guaranty Loan Program, which provides lower rates and longer terms than many standard commercial loans. A trade-off is that the use of the funds may have strict guidelines, and there may be a lower ceiling on the amount that can be borrowed.
The SBA works with banks and credit unions by using the considerable credit of the U.S. government to guarantee a portion of the funds that are extended. This creates a significantly smaller risk to a traditional bank or credit union, which means they may be more likely to approve a borrower for an SBA loan whom they would normally turn down. This is obviously very helpful for an entrepreneur who has yet to establish a business credit score, who has a lower-than-average personal credit score or cannot place a significant down payment or collateral.
Credit Score Considerations
So, what can entrepreneurs do to better position themselves to receive an SBA loan? As with most loans, the biggest deciding factor is the borrower’s credit score. Even though the SBA looks at this a little more generously than many lending institutions, it never hurts to be able to show a higher number. If you are working to establish business credit, be sure you are using it from time to time; it has a bit of a use-it-or-lose-it quality when reviewed by reporting agencies. If you have no business credit you must rely on your personal credit score. If it’s less than ideal, consider waiting a year before applying, and spend that time paying more than the minimum balances early on your credit cards and loans. It’s amazing how much good this can do over the course of a year.
The SBA is a great resource for startups with a great idea but limited credit and capital. Keep these tips in mind to increase your chances of receiving a loan from them.