If you want to start a new business but are worried that you may not qualify for a traditional bank approved loan, then you may be putting off your business aspirations. Many banks will look at your business experience, the business plan, collateral, your credit score, and your overall financial knowledge when deciding whether or not to extend a loan offer to you. If you are lacking in one or more of these criteria categories, then it may be wise to apply for an SBA loan instead.
What Is An SBA Loan?
SBA stands for the U.S. Small Business Association. This association is a part of the government that specifically helps small businesses succeed. The SBA offers programs that help businesses acquire new technology and apply for permits and licenses in a quick manner. The organization also offers assistance to veterans who want to start businesses, and it helps to encourage flexible workplace initiatives. While all or some of these programs may be helpful to you, the most important offering is likely to be an SBA backed loan.
The SBA does not give it out financial assistance for loans. However, it does offer federal backing for loans that are given to high-risk small business candidates. This means that banks will be more willing to offer a loan if you are approved for SBA loan backing. The loan is called an SBA loan, but money is borrowed from a bank that may otherwise turn you down for a traditional small business loan. If you fail to pay back the loan, the federal government will pay the money back to the bank. This offers the bank financial security when giving out small business loans.
How Do You Apply For An SBA Loan?
You should start the SBA loan process by first contacting either the regional or district SBA office in your area. This will allow you to learn about programs in your state or county that may be right for you. Once you learn about special or general loan programs, you will be provided with a list of financial institutions in your area that offer SBA backed loans. You can call the banks in your area directly as well to see if they offer these loans.
Once you find a bank that offers SBA loans, you will need to fill out application paperwork through the bank. Approval for the loan will be based on some of the same factors as a traditional loan. However, the approval criteria will be less stringent. Keep in mind that a strong business plan is essential when it comes to SBA loan approval. You should formulate a three year strategic business plan to show that you have a clear idea of how to build your business and ensure its financial stability.