Whether you are launching a new business or looking to improve your current operations, the quest to secure funding can be daunting.
There are many other funding options on the market, but the most popular is a loan backed by the Small Business Administration, also known as an SBA loan. These loans are a great option for business financing because their rates and terms tend to be more reasonable for borrowers.
As an SBA preferred lender, Peoples Bank can help you navigate the loan process and style your application for quick approval. Here are 5 things to consider before applying for your next small business loan.
The SBA offers four loan programs to match your needs and business goals. The most common loan program is the 7(a) General Small Business Loan which provides funds for working capital, expansions, and equipment purchases. If you need to purchase major fixed assets or real estate, the CDC/504 Loan program could work for you. The SBA also offers a Microloan Program for small, short-term loans and Disaster Loans to replace real estate, personal property, machinery, inventory, and other business assets that are damaged or destroyed in a declared disaster.
Your Credit Scores
Your personal credit score is crucial to your ability to secure any loan, especially one backed by the SBA. Credit scores give banking institutions and the SBA insight into how you manage debt. You can receive a free copy of your credit report once a year at AnnualCreditReport.com.
If your business is already established, we may ask to see your business credit score as well. Organizations like Dun & Bradstreet help businesses check out their credit scores, which range from 0 to 100.
In order to qualify for an SBA loan, your personal and/or business credit scores must be in good standing.
Qualifications & Requirements
Lenders have a set of qualifications and requirements that you and your business must meet in order to be approved for an SBA loan. These may vary, but expect lenders to have standards for credit scores, revenue, and number of years in business.
The SBA also has a set of qualifications regarding the size of your business, your status as a for-profit company, and whether or not you are in good standing with any other government loans, such as a student loan.
You must meet or exceed these requirements in order to move forward with an SBA loan application.
Your Business Plan
All great businesses start with a solid plan. Your bank and the SBA will want to review this information as well. A strong business plan will show lenders how you plan to use your new funding and how this will help increase your profits, and thus your ability to repay the loan. If you’re looking for business plan writing resources, check out the SBA website.
Finally, to qualify for a loan, the SBA requires that the borrower put up collateral. Collateral is personal and/or business assets that can be seized or sold to be used as a secondary source of repayment for your loan. If an applicant does not have collateral, they may require a cosigner who has collateral to pledge. In addition to collateral, each person who owns 20% or more of the company is required to personally guarantee the loan, which puts each owner’s personal credit score on the hook.
No matter where you are in your stage of business growth, Peoples Bank is here to help. We take pride in meeting the lending needs of our local businessmen and businesswomen.
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