Do you want to start a business? Let’s face it. Starting a company is not easy. First, you need to have a good business concept. You need to know what you want to offer to your clients.
Second, you need to decide where you want to build a business. It’s not a bad idea if you want to start a firm in your house. However, if you need a bigger space, you may need to find a site where you want to build it.
These things would be possible to happen if you have the money. Don’t worry! You can turn your dreams into a reality. You just need to ask your relatives and friends to invest in your business or borrow some money from them. However, what if they don’t have cash to lend you? Can you still turn your vision into a reality?
Sure, you can! You simply need to visit the nearest SBA loan companies in your area. Some people are a bit hesitant to get this loan because of the following reasons. First is because they are afraid. They are scared of losing their possessions if they fail to pay their debts on time. Because you are getting this loan in the bank, they feel they will lose their belongings if they get it.
Second, they assume they will not qualify to get the loan. Let this article change your mind! In this post, we will discuss what you need to know about SBA loans. We will also explain the seven misconceptions and facts about this money lending service. So without further ado, let’s begin the discussion!
Understanding SBA Loans
Many people thought that this financial aid started only 6 years ago. However, this help was created in 1953 to assist small-time entrepreneurs. The government knew the potential of these businesses in developing the economy; hence, they created the SBA loan.
So how SBA loan companies work? To get loans for small business, you need to visit a bank that provides this service. The SBA provider secures a loan to the bank. It’s to ensure that the financing company won’t be in peril. So if a borrower fails to pay the credit, the bank gets a portion of the loan.
For this reason, it makes for the bank easier to lend money to borrowers. Nevertheless, it doesn’t mean that they have to do it without taking precautionary measures. After all, they are granting money to people they barely know.
There are a few things you need to possess if you want to get a business startup loan. First, you need to have a good credit score. It’s one of the most important requirements you must have. Small business funding companies consider your score whether or not they should grant you a loan. So if your record is not great, chances are, they will deny your application.
However, there’s still hope for you. You just need to have collateral. It’s a secure way of paying the small business lending company with your possessions like your house, car, jewelry, etc. If you fail to pay the financier on time, then, the bank gets your belongings whether you like it or not. Yes, it could be a bit risky, but if you don’t miss the deadline, your property is safe.
Your experience is also valuable. Financiers will do a background check before they approve your application. They will start with your experience. They will check if you have worked in a company similar to your proposed business. If you do, chances are, you will get their approval.
Another requirement is the amount you have invested in your business. Just because you borrowed money from the bank doesn’t mean they will cover all your expenses. The primary purpose of this loan is to help entrepreneurs to build their businesses. They will just cover the remaining costs you can’t afford. Hence, if you invested a lot of money in your firm, there’s a bigger chance of getting your request approved.
Because you’re asking for small business loans, you have to show them your plan. Your concept will be one of their deciding factors whether or not they should grant your request. If the idea is nonsensical, they could not approve your loan.
Lastly, they will consider your ability to pay your loan. As we often say, promises are made to be broken. Thus, money lenders don’t ask you to make a pledge; rather, they want to know how you can pay them. You can give them a portion of your sales you make each day until you’re debt free.
7 Common SBA Loan Myths
There are several myths about this loan. Some are substantial and a bit discouraging for budding entrepreneurs to get this financial help. Nevertheless, these myths should not affect your decision as they are just misconceptions. Before this article ends, you will know what is truth and lies. Below are the seven common myths about this type of loan and their facts.
Banks Study the Risks Involved in SBA Loans With the Same Points-of-view.
All banks are governed by the same SBA guidelines, but their interpretations are different. Some financial aids are afraid to take a risk; hence, their approval rating is quite low. Nonetheless, there are those who are willing to give an opportunity to every applicant. Thus, you need to read SBA loan company reviews to know the approval and denial rating of each firm.
Bank Institutions Provide the Same Financing Types for all SBA Loan Applicants.
The structure and pricing of loans vary, depending on the SBA provider. Small business loan rates lie in the prime rate and the margin. Some financial firms offer competitive price as they want to be one of the top SBA loan companies. Others make a provision for inventory and accounts receivable to allow third-party loans aside from the SBA loan. There are also banks that ask for collateral to ensure they pay their debts.
For this reason, you need to know the requirement of your chosen bank. In that way, you will know what you should prepare before you apply for the loan.
It Takes a While to Pass the SBA Loan’s Red Tape.
There’s an exception to this myth as it could be true at some point. There are financial firms that need to deal with the SBA bureaucracy before they approve an application. Nonetheless, most providers have delegated authority for this particular loan. If the company has someone who guards all requests, the process will be faster.
However, it still depends on the requirements they ask. If the application needs an appraisal, it will take weeks to finish the procedure.
It’s Exclusively for Start-ups and Small Businesses.
The question is how do you define “small” in small businesses? There is no exact definition of this word in the market industry. Many people think that a “small” company refers to the actual size of the building. However, every state has different size requirements. Hence, you cannot say that the firm is big because its office is as big as a three-storey building.
So how do they know if the company is a small business? They focus on the number of sales they make annually, as well as the number of their employees. For example, in the mining industry, they consider the business small if it only has less than 500 personnel. As for retail stores, the loan provider considers it a small business if it earns $ 5 million a year. To know more about the size requirements, you can go to SBA.gov.
SBA Loan Companies Ask for a Lot of Collateral.
As mentioned earlier, collateral is one of the requirements of SBA providers. It’s to ensure they get something from the borrower if they fail to pay their debts. However, this isn’t the only thing they consider. They also check your credit score, your ability to pay the loan, and so on.
Therefore, you don’t need to put all your possessions at risk. Your car, for instance, is enough to secure your loan. Nevertheless, you still need to pay your loan, despite having collateral. Otherwise, you won’t get it back if you fail to pay your debts, even if you want to.
You Can Only Get SBA Loans From the Federal Government.
Though the government created this loan, it doesn’t mean you would get it from them. SBA, or Small Business Administration, is a branch of the Federal Government. Their role is to provide guidelines to SBA providers. Hence, if you want to avail this loan, you still need to go to the bank.
SBA Loans Are Your Last Resort.
Though its purpose is to help budding entrepreneurs, it should never be your last choice. The SBA financial assistance is ideal for both new and established businesses. The money you get from these providers is perfect for refurbishing buildings, buying machinery, and so on.
These are the common myths and facts about SBA. Do you want to know which SBA loan companies are best for your needs? Go to CrowdReviews.com and read their reviews on small business loans.