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An Intro to SBA Loans

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Have you explored all the small business resources available through the Small Business Administration? Though it isn't actually a loan-granting body, the Small Business Administration can be a great gateway for a number of resources that can help you secure capital for your business. It also provides a number of tools and resources that will help you get ready for the loan application process.

To get started, check out the SBA's loan and grant tool. With this tool, search for a number of grants and loans meant for specific populations and business niches that you may not know about.

What you'll need to apply for a loan:

  • Personal Background: Be prepared to provide background information including your previous addresses, names used, criminal background, military service, etc.

  • Resumes: Outline your relevant management or business experience here.

  • Business Plan: Prepare a sound business plan, complete with financial projections. For more information on creating a business plan, check out our resources here.

  • Personal Credit Report: In order to make sure there are no inaccuracies or blemishes on your credit report, get a credit report from all three major consumer credit rating agencies before submitting your loan application.

  • Business Credit Report: If you are already in business, be prepared to submit a credit report for your business.

  • Income Tax Returns: Get those tax returns in order -- in most cases you'll need to provide tax returns for the past three years.

  • Financial Statements: Provide a detailed set of financial statements, including a rundown of fixed startup costs and operating expenses, your cash flow projections and your balance sheet. More on financial statements here.

  • Bank Statements: Plan to provide a year of personal and business bank statements as part of your loan application.

  • Collateral: Having a strong business plan can prevent you from having to provide collateral, but nonetheless, some loan programs will require it.

  • Legal Documents These will be specific to the loan program, but may include business licenses and registrations required for you to conduct business, Articles of Incorporation, third party contracts, leases and franchise agreements.

In additional, you'll need to be prepared to answer the following questions from you lender:

  • Why do you need a loan?
  • How will you use these funds?
  • How will the loan proceeds be used?
  • What additional assets do you need to purchase?
  • Do you have other business debt and who are your creditors?
  • Who are the members of your management team and what are their backgrounds?

Here's a rundown of some of the loan programs that the SBA facilitates:

7(a) Loan Program

The SBA's most common loan program, the 7(a) was designed to help entrepreneurs grow and start their businesses. The Small Business Jobs Act of 2010 permanently increased the maximum size of these loans from $2 million to $5 million.

There are a number of subsets of 7(a). If you fit into specific borrower groups, such as active duty military personnel, veterans, and borrowers from distressed communities, SBA's Express and pilot programs might be right for you.

The 504 Loan Program

The 504 Loan Program provides approved small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization. These loans are unique in that typically, the SBA provides 40% of the total project costs, a participating lender covers up to 50% of the total project costs, and the borrower contributes 10% of the project costs. Under certain circumstances, a borrower may be required to contribute up to 20% of the total project costs.

7(m) Microloan Program
The Microloan Program is perhaps the most accessible of the SBA's programs. Through nonprofit community-based organization, the SBA makes available small, short-term loans of up to $50,000. The most common loan amount is about $13,000.

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