One of the biggest hurdles to starting a small business is funding. Many people start their businesses with their own funds or with small loans from friends and family. If those funds aren’t available or you need more money than those sources can provide, a good option may be a small business loan.
What are small business loans?
The Small Business Administration guarantees loans to small businesses that banks make, which takes away some of the risks and helps small businesses get financing when they otherwise not be able to. Because of the guarantee, the SBA has lots of rules that you have to follow that make it fairly difficult to get approved for a loan.
Have a clear purpose
You must have a sound business purpose for the SBA to grant you a loan. Make sure you have a solid business plan and that your business meets all criteria for size, type of business, etc.
You need collateral
The SBA expects its loans to be fully secured by tangible assets, which usually means a business building and equipment, but can be personal property. If you don’t have sufficient collateral, you still may be able to get the loan, but it will be much tougher.
You must be able to repay it
The SBA will look long and hard at your ability to repay the loan. If you are an existing business, you will need to be able to show a solid history of profit as well as good cash flow. If you are a new business, you must have a solid business plan that shows your ability to make loan payments.
Have your information ready
The SBA will want to see a number of documents from you, including your personal and business credit scores, financial statements, your business plan, projections of cash flow and any personal guarantees by members of your business.