Small Business Loans in America
If you are interested in starting a small business in the United States, you will find an abundance of information when you visit the Small Business Administration’s (SBA’s) home page at http://www.sba.gov/.
In the “Small Business Planner’ Section, you can learn more about becoming an entrepreneur, how to write a business plan, and managing and expanding your business.
Its resource partners, Small Business Development Centers (SBDC) and the Service Corps of Retired Executives (SCORE) offer individualized counseling on these topics at no cost to you, along with evaluating your plan, discussing marketing principles, and explaining legal requirements (including licensing your business) and business loans.
Where you should look for small business loans?
Your local lender will provide specific requirements, but in general they include the reason for the business loan, projected balance sheet on opening day, amount the to be invested by the owner, a forecast of cash flow, income and expenses, the owner’s resume, and the owner’s personal financial statement with signature.
Your goal is to determine if they can accommodate you as part of the SBA’s Loan Guaranty Program, which can provide as much as 85% of your loan. Then your credit analysis and business loan application will be forwarded to your area’s SBA District Office, and you will receive a decision within the next 10 days.
Points to remember when you apply for small business loans
While the applicants ability to repay their small business loans will be the main consideration in obtaining it, integrity, your management ability, the collateral you provide and the amount you are prepared to invest are also significant factors.
In addition, if you invest at least 20% in the business, you must be prepared to personally guarantee your busines loan. Note also that the SBA will not deny approval on lack of collateral alone, but it will be considered as one of several factors when applying for a business loan.
Finding an investor for your business
The Small Business Investment Company Program (SBICP), which the SBA licenses and regulates, can provide venture capital to start your small business. Using their own funds, along with funds they obtain at low interest rates, SBICs, are for-profit organizations with the goal of sharing in the profits of small businesses.
To accomplish this, they provide equity capital, debt-equity investments, long-term loans, and management assistance.
Repaying small business loans
If you qualify for the Loan Guaranty Program, your loan repayment schedule will be based on the way in which the proceeds are used, along with your business’ ability to repay.
For borrowing working capital, the usual terms are 5 to 10 years, and a maximum of 25 years applies for the purchase or renovation of property, the purchase of equipment, or buying other fixed assets.
The interest rate for small business loans is negotiated by the applicant and the local lender. In most cases, the maximum rate is 2.25% over the prime rate if the loan matures within 7 years and 2.75% over the prime rate if it has a later maturity date.
Also, the interest rate your lender charges may be slightly higher if you borrow less than $50,000.