As a small business owner, it can be super difficult to make ends meet or chase new opportunities especially in the first couple of years. Subsidizing your business with a bank loan can be a great way to give yourself a room to breathe, meet deadlines and finance those exciting projects you’ve always wanted to go after.
But bank loans can be really hard to obtain and they aren’t necessarily optimized for small businesses. High-interest rates, collateral, whatever you name it, financing your new business with a loan can be risky.
Fret not because SBA loans are exactly made for small business owners, and can be your best option when it comes to starting your own venture.
What are SBA loans?
On the most basic level, SBA loans are loans that are backed by the small business association. As there’s a big chance for new businesses to fail, the government partially secures and backs the loan. In some cases up 85%.
This is great for the lender because even if the business defaults and they can’t make payments, the government will return up to 85% of the loan. Without this security, most lenders will hesitate to lend money to new businesses as they’re considered a risky investment.
So, how do you qualify for an SBA loan?
We’ll be straight, an SBA loan might sound like the best type of loan for your small enterprise, and it most likely is, but it isn’t easy to qualify for one.
Some of the criteria you need to meet are:
- A credit score above 650;
- You need to have between one and three years of history as a business;
- And you must be US-based (or at the very least operating in the United States);
It’s also good to keep in mind that online business loans have a higher approval rate than going to the bank and applying separately in every bank.
What else do you need to get an SBA loan?
Just like applying for any other business loan, you’ll have to prove that your idea is profitable, scalable and most importantly that you can do it.
So, here are a few things that you’ll have to provide when you’re applying:
The collateral you can offer and its estimated market value;
- The amount you’ll invest in the business and the amount you’re looking to borrow;
You’ll need to provide an up-to-date statement of your financial position with all your personal assets;
- A description of your business and how you plan to establish it;
Should you go for it?
Well, yeah. If you’re a small business who is still struggling to get off the ground an SBA loan can help you with just that. You have to remember that this type of loan is made to specifically help small businesses, which will take off a lot of the concerns that come with taking out a normal bank loan.
If you’re struggling, or even if you want to finance a new business venture an SBA loan is most likely the best fit for you.