SBA Small Business Loans Explained–Availability, Eligibility and the Application Process
byCaronBeesleyon02-04-201007:47 AM- last edited on02-11-201009:53 AM
With 2009 behind us, it's pleasing to see some indicators that the government-backed small business loan market may be trending in the right direction. In early January 2010, *CNN Moneyreported that the Small Business Administration's flagship lending program - theBasic 7(a) Loan Program- backed 37% more loans in its latest quarter than it did during the same period in the year prior. That's $3.8 billion spread across 12,393 loans.
If you have struggled to get financing in the past, or are thinking of venturing into small business loan territory for the first time, here are some pointers.
What is a Government-Backed Business Loan?
First, let's dispel one myth - the government does not (generally) directly provide business owners with loans . Instead, it provides a guaranty to banks and lenders for the money they lend to small businesses owners (and you'll find informationhereon what the SBA officially considers "small"). This guaranty protects the lenders interests by promising to pay a portion (the percentage varies by the type of loan) if the business owner defaults on the loan.
Essentially government-backed small business loans alleviate the risk associated with lending money to business owners and entrepreneurs who may not qualify for traditional loans - thus opening up lending opportunities to thousands of entrepreneurs, start-ups, growing businesses, minorities, and veterans.
While each loan has its own specific qualification criteria, you will need to talk to your bank or lender about your eligibility. But before you set up your first appointment with a loans officer, use thisSmall Business Loans and Grants Search Tool(from Business.gov) to help you build a picture of what government-backed financing your small businessmight beeligible for based on your business profile and needs.
Your localSBA District Officecan also provide guidance and advice about loan eligibility and application requirements. They should also be able to point you to SBA lenders in your area.
While most banks and lenders offer SBA loans, you would be advised to approach a bank that been through this process before and is also either a Certified Lender or Preferred Lender. That certification means they have a contractual relationship with the SBA and participate in theCertified Lender (CLP)/Preferred Lender (PLP)programs - in other words, they have a proven track record of processing SBA-backed loans and know what they are doing!
And don't necessarily think you need to stick to the big name banks. In fact, some of the larger banking institutions were hardest hit by the recent economic collapse and slowed their business borrowing significantly. Many smaller community banks and credit unions can offer local market knowledge and may be more flexible to your needs. Take a look at this Business Week slideshow (based on SBA data), which lists the*Top Small Business Lendersof recent years.
The Loan Application Process
Needless to say each SBA loan program has its own eligibility criteria and application process. But at the end of the day, you will need to gather and prepare similar loan application documentation - regardless of the program. From personal and business financial statements to old tax returns, thisSBA Application Checklistlists what you need to prepare in advance of your loan application. Read "*How to Prepare a Loan Proposal" for more tips.