The financial crisis left many small businesses in a state of despair. Many had invested all their savings and personal assets on the business, and the lack of credit availability made it impossible for them to continue operations. Banks were unwilling to lend money and capital markets were not receptive to venture capital or private equity financing. The good news is that things have changed for the better. Business loans are now much more accessible than before – even for small businesses. Many banks realize how important it is to support businesses at all stages, from infancy to maturity. They have started coming up with specific financing plans just for smaller firms. Whether you’re just starting out as a sole proprietor or you’re ready to take your business to the next level, an SBA loan can help you fund new growth ventures while minimizing your risk as a borrower. Here are some tips on how to get a business loan in today’s market:
Know your options
The SBA has two main loan programs: the 7(a) Loan Program and the Small Business Investment Company (SBIC) Program. The 7(a) Loan Program: This program allows you to get up to $5 million in fixed-rate financing to buy real estate or finance working capital. If you want to finance inventory, machinery, or other operations, you can use the 7(a) loan for up to $1.5 million. You can also apply for an SBA loan if you want to purchase stock in an existing SBA-backed company. The SBIC Program: This program is for established venture capital funds that invest in high-risk startups and small businesses with high growth potential. If you are applying for this program, ask your lender if your loan can be converted to a 7(a) loan after 3 years.
Check for eligibility requirements
Different lenders have different eligibility requirements for business loans: – You must have been in business for at least 2 years: New businesses and startups are not eligible for funding unless they were created with a specific business plan that meets the lender’s requirements. – You must have verifiable collateral: Your assets will be used as collateral against the loan. Banks and lending institutions want to be sure that they will get their money back if you default on the loan. – Your credit score must be at least 600: Your credit score is an important factor when applying for a business loan. The higher your score, the better your chances of getting approved. – You must have an acceptable cash flow: Lenders will look at your business’s current and projected cash flow to determine if you can make the loan payments on time.
Shop around and find the best deal
Because lenders have varying requirements, you may find that it’s easier to get approved for one loan than another. Shop around, compare loan terms and interest rates, and choose the option that works best for your situation and goals. If you are applying for an SBA loan, you don’t have to go to different banks to see who offers the best deal. The SBA has a database that lists all participating lenders and shows the terms of their loans. You can also find a lender using a commercial online database, such as LendingTree or Prosper.
Apply immediately (don’t wait)
Since business loans are competitive, it’s best to apply as soon as you identify the need. Most lenders have strict deadlines and they want to process and fund your loan as quickly as possible. If you’ve been in business for less than 2 years, it’s recommended that you apply for a term loan instead of a line of credit. Term loans have set payment dates and are due upon receipt of the loan, while lines of credit are available indefinitely.
Negotiate and be flexible
If you’re applying for an SBA loan, make sure you’re flexible with the terms of your loan. You can negotiate repayment terms and interest rates, as well as the length of the loan. If you have a good credit score, you can get a better interest rate than someone with a lower credit score. However, you may have to put up more collateral or be more flexible with the loan terms.
Summing up
When the financial crisis hit, many banks stopped lending money to small businesses, which left many entrepreneurs without the capital needed to grow their companies. The SBA was created to provide funding to small businesses, and today, it’s easier to get an SBA loan than it was before the crisis. If you’re ready to grow your business and expand into new markets, it’s a good time to get a business loan. With the right strategy, you can get the funding you need and keep your business afloat.