When you are considering funding options for your business, it’s important to weigh your options carefully. Perhaps one of the best loans you can get for any business is the SBAs’ 7(a) loan. Although the SBA offers other loan products the 7(a) Loan Program tends to be the most applicable to small business owners. Seventy-five percent of the funds from these loans are guaranteed by the SBA, which is designed to encourage lenders to make capital available to individuals who may otherwise not be able to obtain financing.
Some of the major advantages of these loans are – longer terms (10-25 years), lower interest rates, caps on fees, and lower down payments.
Getting approved for a loan from the SBA requires time, knowledge and diligence. The good news is that it is easier now to get funding through the SBA than it has been in quite a few years.
There are some things to keep in mind though.
1. There’s a lot of paperwork – The SBA requires a lot of additional paperwork compared to a traditional bank loan. Be prepared to fill out extra forms and submit financials.
2. You only get one shot – Once you apply they either approve or decline you, and they won’t tell you the reason if you are declined. And if declined, you cannot apply again until you go through a waiting period.
3. No refinancing or double-dipping – When you are approved for your loan through the SBA you cannot refinance – ever. Also, you can never have multiple SBA loans at the same time.
4. It may affect your personal goals – The SBA standard operating procedure is if a borrower has personal assets to help secure the loan, the lender is required to put a lien on them as additional security. If you do pledge securities or cash as collateral, it could negatively impact your liquidity or credit on a personal level as well as business.
This all means that you need to be prepared before you get into the SBA process. Know exactly what type of loan you want to apply for, and what forms are required. You will also likely need bank statements, a current P&L, and a cash flow analysis among other things.
Speak to an expert to review your application before you submit. You only get one shot. And something that most people don’t do, is taking the time to evaluate your loan and your future plans for the business.
Since SBA loans are long term loans and you can’t go back to them for funding until your current loan term is complete, you may want to consider looking for a larger loan even if you don’t plan to spend the additional funds right away.
After doing all your research it may turn out that the SBA is not the best fit for you after all. That’s why it’s important to speak with someone who understands a wide variety of lending options, including the SBA and non-traditional loans.
If you want to speak with one of our lending experts about your situation, we can guide you through the entire process and even help you prepare financials.