If you are planning to set up a new business and are in search for a capital to use, the first option that you must consider is the small business administration loan, or to be precise, you should request for an SBA assisted loan. The application for this kind of business loan is normally done in the bank.
The SBA (small business administration) guarantees the loan to the bank. Hence, in the event that the borrower fails to pay the dues, the SBA will pay a fraction of the total loan amount. However, this doesn’t mean that you will be free from your obligation as you’re still legally responsible for the loan.
This set-up makes it so much easier for the banks to approve financial assistance to up-and-coming businessmen. But still, the bank can’t just lend money indiscriminately. The application for small business administration loan will have to go through its normal process and should meet the set requirements. This is to protect the bank’s interest and the SBA’s as well.
You must know that the SBA does not directly give the money to the business owner or borrower. Thus, it’s crucial that the bank that you’re dealing with is well-informed about small business administration loans, since they will be the one to process your loan request and not the SBA. Still, the SBA will examine your application after the bank’s approval.
So, what are the things that the bank will examine in your application? Here they are:
1. Good credit rating
In all probability, this is the first thing that the bank will look at. Thus, it can be said that this is one very important aspect that they will take into consideration, although there are still other factors to consider.
If you happened to have a poor credit score at the moment, start making a way to make it better. Moreover, if you need your loan money now, you can just make up for your imperfect score through providing a
comprehensive business plan, collateral, a cosigner, a higher investment, and so on. Plus, it will also help if you will give reasons for your unsettled credit issues.
Collaterals mainly serve as security for the lender. In a number of cases, the down payment and a good credit record are already sufficient to get a small business administration loan. But depending on the sum that you want to get, there may also be a need for you to provide collateral. You can use your vehicle, house, or other major properties as collateral.
3. Your investment
When you are setting up a new business, you must be ready to personally invest a fraction of the start-up costs or capital. You will hardly ever find lenders who will fully finance your business. For this, you will have to raise at least 20 to 40% of the outlay by yourself as this is also what the lender will expect from you. Take note that the greater amount that you put in the business as investment, the better that your application will look to the bank.
Finally, when requesting for the small business administration loan, be sure that you have a solid business plan in order to make it work. In this way, you will also not waste money as well as time and effort. Do some research and know your business very well and you will be able to get back the money that you had invested and eventually gain even more.