Getting an SBA Loan
While the government wants to help out small businesses because a strong system of small business means a strong economy, it does not give out money to everyone. Like a commercial bank, the Small Business Administration or SBA is concerned with the ability of the small business to repay. If the prospective small business owner does not have a good track record, either with business loans or personal loans, the SBA will be hesitant to lend. Additionally, the SBA will want to know about the people who will manage the new business. Have they done this before? What are their credentials?
Collateral and Cash Contributions
A commercial borrower must pledge collateral, a tangible security that will be turned over to the lender in case the loan cannot be repaid. The SBA is no different. Collateral may include a mortgage on land, a building such as the borrower’s personal home, heavy equipment, the cash value of life insurance, stock, bonds, or the borrower’s inventory of goods. The SBA also expects the borrower to put some money into the business as well. The ideal arrangement is to lend one dollar for every two of the borrower’s own money. However, for a business that is just starting out, the SBA may choose to put in as much as four dollars for every one dollar of the borrower’s own money.
The amount the SBA will loan depends on the borrower’s experience as well as on the business itself. Absolutely new businesses may expect two to four dollars in loan for every dollar the borrower invests. Those who have business experience might expect three to five dollars in loans for every dollar invested. The SBA is likely to grant those with professional business degrees three to four dollars in loans for every dollar invested. If the borrower is attempting to buy an existing business, the SBA is will provide three or four dollars in loans for every dollar invested.
Loan Approval Can Come the Same Day
The SBA currently guarantees more than a third of all the long-term loans made to small businesses in the United States. A loan can be approved on the same day, though the process can also take up to several months. The SBA says most delays in loan approval are the result of documentation and signatures missing from the loan application.