- Sba Financing Guide For Entrepreneurs Association
- Sba Financing Guide For Entrepreneurs Business
- Sba Financing Guide For Entrepreneurs Students
The SBA (a part of the federal government) works with trusted lending partners to offer loans to small businesses. The SBA doesn't lend money directly to small-business owners, but it does. The SBA helps small businesses get loans The SBA works with lenders to provide loans to small businesses. The agency doesn’t lend money directly to small business owners. Instead, it sets guidelines for loans made by its partnering lenders, community development organizations, and micro-lending institutions.
What is an SBA Loan?
Whether you’re looking to purchase real estate, buy an existing business, cover construction costs or obtain working capital, an SBA loan can provide the funding you need for your business. These loans, which are backed by the Small Business Administration (SBA), are actually financed through individual banks. However, the SBA guarantees between 50 and 90 percent of the loan should it go into default, which encourages the banks to lend to small business owners with preferable rates. Thanks to this relationship between the SBA and lenders, entrepreneurs are able to obtain financing to buy or expand their small businesses with affordable repayment terms and low interest rates.
Challenges of Obtaining an SBA Loan
Though SBA loans are meant to stimulate small business, getting approved for a loan is not an easy or simple process. Because SBA loans are guaranteed if they default, and because lenders still carry some risk while offering lower rates than typical bank loans, borrowers typically must be well qualified in order to be considered for funding. Lenders not only look at five factors of eligibility (also referred to as the 5 C’s), they also want to see an excellent business plan and a large down payment. Meeting these eligibility requirements, presenting a perfect application package and coming up with enough cash to be considered for a loan is a tough feat for anyone — especially busy aspiring business owners.
What is Covered in This Guide?
In this complete guide, we take the guesswork out of applying for an SBA small business loan. While specifics do vary by individual lender, by learning what the SBA is, how to become a qualified borrower and understanding your loan options, you can decide if this type of financing is the best choice for you and your business. Here’s a preview of some of the topics we’ll address:
- What an SBA loan is
- How to qualify for an SBA loan
- How to write a winning business plan
- What to expect during the SBA loan process
- Where to get an SBA loan
- The pros and cons of SBA lending
- How to get started obtaining SBA funding
Why Should You Read This guide?
While many aspiring business owners seek funding via an SBA loan and yet only 10 percent of applicants are approved. Obtaining SBA funding can be a great way to fund your business venture, but the application process is timely, and we want entrepreneurs to invest their precious time wisely. This is why we created this guide: To help you save time, provide an in-depth view of SBA lending and provide you the tools to increase your likelihood of being approved for an SBA small business loan.
Though the Paycheck Protection Program (PPP) ended August 8, 2020—with a lack of clarity as to when it might be revived—businesses are still in need of capital.
Though more than 5 million PPP loans have been approved, accounting for $525 billion, according to data from the Small Business Administration (SBA), it’s still not enough.
House Democrats propose allowing second loans to but with some restrictions: They must have fewer than 200 employees and have experienced a 25% reduction in quarterly revenue year-over-year due to the pandemic.
Nonetheless, in advance of waiting for a stimulus package to be passed—and even if it does— businesses should consider any additional alternatives.
Related: Has There Been $1 Billion in PPP Fraud?
Six additional funding options
1. Equipment financing and leasing
This is not a traditional loan, but if your business needs equipment—perhaps even updated equipment in order to accommodate new Covid-related sanitation or social distancing rules—consider working with the manufacturer or distributor to lease the equipment rather than use the proceeds of another loan to buy it.
For example: Furniture, a pizza oven, an X-ray machine and construction tools can all be leased.
Leasing is similar to borrowing, except the manufacturer or distributor owns the asset and rents it back to you for a monthly fee, often with a lower payment than what a loan would be. Most leases come with a fixed interest rate and conditions vary.
If the terms of the leasing company do not fit your criteria, you can seek equipment financing from several other sources including banks, , online lenders, and even the SBA depending on several factors, including your creditworthiness.
2. Assistance from marketing and IT vendors
Thanks to programs launched earlier this year from large, name-brand providers, are able to explore some relief from the “softer” expenses of running a business—notably marketing and IT.
Some of these might be grants, discounts, or more attractive terms on services or even equipment.
For example: Google is offering $340 million in ad credits for small and medium-size companies and Yelp is waiving advertising, product, and service fees for restaurant and nightlife businesses.
Large IT providers have traditionally offered special leasing options for businesses. Earlier this year, Dell, HP, and other technology providers announced special financing and deferred payments for partners and customers.
Ask your marketing or IT resource if any relief might exist in these areas.
Related: 5 Strategies for Avoiding PPP Legal Blunders
3. Borrowing from friends and family
Financing from acquaintances and relatives remains one of the primary sources small businesses use to access capital. Even Jeff Bezos famously borrowed close to $250,000 from his parents to start Amazon in 1995.
However, as a business owner, you must decide how to structure the investment. If you intend to make regular periodic payments—and demonstrate commitment on a consistent basis—then a loan makes sense.
If you don’t want to make payments, offering an equity stake is an option. Of course, it’s difficult to regularly assess the business in the event that a friend or family member is curious about the business’ current valuation and what their equity stake is worth.
To avoid awkward situations and miscommunication, it’s better to err on the side of over communication on how you are using that infusion of capital.
Related: 4 Things You Might Want to Do Now That Your PPP Loan Is Paid Off
4.
Factoring is not a loan, but rather an advance on the value of your business’ accounts receivable.
A factoring company is a third party that is willing to purchase part or all of your receivables at a discount. The factor then owns the outstanding invoices and collects from your customers. The factor profits from the difference between the discounted rate negotiated to buy the receivables and the full amount collected from the customer.
If you are a retail business where customers pay at the point of sale, then factoring will not work for you.
If you are not a retail business, but instead have several, large customers who buy from you with specific terms, and those customers pay their bills regularly, then factoring could work out well for you. The factoring company purchases your receivables so you can get cash.
5. Non-profit micro lenders
Several state, regional and municipal governments, through their economic development initiatives, offer microloans to support local businesses and their communities.
Eligibility requirements vary and a few of the loans have zero interest. Some programs actually offer grants—i.e. a loan that does not have to be repaid.
This type of program benefits a business that can leverage a relatively small amount of capital into larger opportunities that create jobs and contribute to community growth.
Further, the business can leverage the association with the economic development organization for publicity and good will, hopefully leading to even more customers.
6. Alternative, small business lenders
Businesses should consider alternative lenders that have fewer requirements than banks in order to get approved for loans quickly.
Sba Financing Guide For Entrepreneurs Association
Cash can be available as working capital within just a few days, and without the documentation, such as credit reports and tax returns normally required when applying for loans from traditional banks.
Diversify your lending leads
Sba Financing Guide For Entrepreneurs Business
To take advantage of all loan or financing options available, small businesses need to get creative. Instead of waiting for a second round of PPP, they need to be more savvy about where they seek financing and the lenders they choose.
Sba Financing Guide For Entrepreneurs Students
Harnessing a combination of sources is the path to survive in these uncertain times.