If you're a small business looking for information on loans, chances are you've figured out that starting or running a small business isn't cheap! Most successful small business need initial capital to get their feet under them and have a shot at making it big.
Things to Consider Before Applying
Before even applying for a loan, you'll need in-depth answers to all the following questions that are sure to be asked:
- What is the money for? Hint: a new jet ski isn't the right answer for a lender.
- How much do you need? Don't just throw out a number, you'll need a detailed business plan.
- How long until you can pay it back? Give yourself more time than you think you need.
- How long have you been in business and what is your revenue?
- How much collateral do you have?
- How quickly will you need the loan?
With satisfactory answers in hand to these questions, you can approach a lender (such as Bank & Trust Company) and ask for a loan.
The Truth About SBA Loans
An SBA loan comes from the US Government, but money is loaned through a bank or other financial institution. The government sets the guidelines, which is usually a good thing in this case. It's easy for the government to extend loan payback dates if needed because of the size of the organization. They may be a little more forgiving than your cousin that loaned you 20 bucks a week ago.
You can expect to pay an SBA loan back in 10-20 years, substantially longer than a conventional loan from the bank. Interest rates may be slightly higher with a government funded SBA loan but will stay locked in at the initial rate of interest for the life of the loan, something a traditional bank won't be able to promise you.
The government is also a little more liniment with businesses or individuals with a less than perfect credit score or startups with a very tight cash flow. The bank is willing to loan the money to these individuals because of government guarantees.
The Downsides
The downside of any loan is that you have to pay it back. But with an SBA loan, since it comes from the government you can expect a load of paperwork and processes not experienced at other financial institutions. The government will be strict on what you do with the money you're given, more so than a loan from the bank.
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