Commercial banks and financing companies are getting wary of extending credit to small businesses. This is a direct result of a gloomy economy where the business climate remains uncertain. Because of tightening credit, more and more entrepreneurs are discovering the value of SBA small business loans. You too can take advantage of the government lending program in order to jumpstart a business or to further enhance your existing enterprise.
However, getting SBA loans is not a walk in the park. There are lots of requirements that you need to comply and documents to submit. You must also ensure that you are applying for the right loan package to increase your chance of approval. To avail of SBA small business loans, here are the important criteria that you have to meet.
A Strong Business Plan
A business plan is one of the most important documents that the SBA will require from you. You need to make a strong, precise, and concrete business plan outlining the feasibility of your business, projected income, amount needed, and prospect for growth. A business plan need not be a treatise. It should be short, easy to understand, and based on concrete facts. If you do not have a business plan or feasibility study, then the SBA will not take your application seriously. The proposal will be used by the SBA to evaluate profitability and business risks.
You Need Equity
Equity or your stake in the business is an important requirement of the SBA. You need to show that you have a serious stake in the business. Your equity is a guarantee that you will do your best to make the business successful. If you will apply for SBA small business loans, then you need to have a minimum equity of at least 25 percent. This means that you should have a real investment in the business to get government funding. So if you are applying for $100,000 business loan, you should have counterpart equity of $25,000 in the business so you can get the requested amount.
You Need Good Credit Rating
To avail of SBA small business loans, it is important to have a good credit rating. The SBA will evaluate your credit history to see if you are a good payer and can be relied upon. Credit evaluation will be conducted by the partner banks of SBA. If the business is single proprietorship, your personal credit history will be evaluated. If the business has incorporators, then the credit history of major stakeholders will be assessed too.
The SBA will require you to personally guarantee the loan. So it is important to show that you have a good history of repaying your debts. If you have a record of bankruptcy or have poor credit rating, then it might be a little difficult to secure a loan from the SBA. You need to repair your credit first so you can increase your chances of approval.
Getting SBA small business loans is a viable option for all entrepreneurs. As long as you meet the criteria of the SBA, getting fresh capitalization for your business would be easier.