If you’re thinking of starting or expanding a business but are having trouble securing a loan through a private lender such as a bank, the Small Business Administration can help. SBA loans are issued by private lenders but, unlike other loans, they’re guaranteed by the SBA.
The SBA’s guaranty encourages banks to lend money to small business owners by reducing the lenders’ risk. If a borrower defaults on an SBA loan, the SBA reimburses the lender. A number of different SBA loans are available. For starting or expanding businesses, the SBA has three guaranty programs.
The most common SBA loan comes from the Basic 7(a) Loan Program for new or growing businesses. Certified Development Company 504 loans are for existing businesses that wish to expand. These loans provide long terms and fixed rates for land, buildings and other major fixed assets, notes the SBA. The SBA Microloan Program provides funds that allow nonprofit, community-based lenders to make small loans of up to $35,000 to start-ups, new business and growing businesses alike. For all of these programs, borrowers apply through their local lenders.
Business owners interested in SBA loans must submit documentation as part of their applications. In addition to the borrower’s application form, the SBA needs an application for guaranty from the lender. The borrower also submits an SBA statement of personal history, personal and business financial statements, one-year income and financing projections and business and personal tax returns. In addition, the borrower must submit a resume as well as a business plan. The lender considers this information and the borrower’s and business’ credit reports before making a decision.