You have a great business idea and you wrote up a killer business plan. Now, you just have to find funding for your new business.
One of the best ways to get funding is through an SBA loan. The Small Business Administration backs billions of dollars in loans each year, providing new businesses an opportunity to start up. SBA loans, particularly the 7(a) and Express Loans are versatile and can be used for almost any business purpose. The Small Business Association (SBA) also backs loans of $1 million, but to apply for funding, you will need to submit an application through an SBA-approved lender.
How can you qualify for an SBA loan for your business?
Keep reading to find out.
1. Know the Types of SBA Loans
Did you know that there’s more than one SBA loan? SBA loans cover many different business needs. There are microloans for less than $50,000. There are loans to help you build buildings or equipment.
You want to figure out which loan you need, and then learn how to qualify for an SBA loan.
2. Understand How SBA Loans Work
When you take out an SBA loan, you’re not borrowing money from the government. Instead, you’re borrowing money from the bank.
The SBA guarantees those loans, so if you default or if your business goes under, the bank still gets paid by the SBA. Now, that doesn’t mean you shouldn’t pay your loan. That would have serious consequences on your financial life for years.
3. The General Qualifications for SBA Loans
To qualify for SBA loans, your business has to be located in the U.S. The second part to qualify is to be a qualifying business. There are some industries that are excluded from SBA loans. They include gambling, real estate development, pawnshops, political or religious activities, and mortgage companies.
You have to have a small business, and you have to have invested in your business yourself.
4. The Lender’s Requirements
You’re going through the bank to get your SBA loan, which means that you have to meet the bank’s criteria as well as the government’s criteria to get a loan.
The bank is going to look at your credit score, credit history, and business financials. If you’re a new business, you have to have a strong business plan that demonstrates realistic growth over the next 3-5 years.
Businesses that have been around for a while need to show financial stability, good credit, and a plan to grow revenue. For example, if you’re getting a loan to expand capacity, you have to show how that will impact revenue over time.
You have to have strong financial projections over a 3-5 year period.
If you have a weak credit score, you want to take the time to improve it. Make sure that you pay your bills on-time every month. You can also raise your score by lowering your credit utilization rate. The faster you can pay down your debts, the higher your score will be.
Get an SBA Loan for Your Business
If you want to start or grow your business, an SBA loan can help you do that. You need to know what the different loans are and choose the one that’s right for your business.
You can leverage these funds to hire employees, invest in better equipment, or take care of operating expenses as you’re building up the business.
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