Is your company growing faster than you can financially keep up with? It might be time to consider SBA lending. Check out these signs it's time to get the loan.
20% of small businesses in America fail in their first year. A critical contributor to this failure is the lack of adequate funding for operations.
As a small business owner financing can make or break your firm. The government through the Small Business Administration (SBA) seeks to support the growth of small businesses through SBA lending.
The SBA guarantees loans given to entrepreneurs by its partners to reduce the risk of default.
If you are looking to support the growth of your small business here are signs that SBA loans might be what you need.
1. When You Need to Refinance High-Cost Debt
Small businesses are usually seen as high-risk borrowers by banks and other alternative lenders.
As a result, the interest they charge can at times be higher than those they levy on more mature firms. A high cost of debt ends up making things much more difficult for your company.
As a small business owner, the SBA can help you remedy this situation. Since the government partially backs a lender facilitating an SBA credit facility, they can offer relatively lower rates.
The 7(a) loan program will be the most suitable option for you when refinancing expensive debt.
2. When You Need to Acquire an Existing Firm
When your small business begins to grow there are times when acquiring another existing company can become a viable option.
Through the 7(a) loan program you can get up to $5 million through the SBA’s lending partner to help you expand.
3. When You Need to a Buy Major Fixed Asset
Although you may have begun your business on a small scale, its success can call for expansion of operations.
As a result, you might need to buy significant fixed assets to grow the firm's operational capacity. These assets can include:
- Existing buildings
- Buildings you plan to construct
- Buildings you plan to undertake significant renovations
- Long-term equipment and machinery
If your cost-benefit analysis shows that purchasing a significant asset is better than leasing it the SBA can help you. Its 504/CDC program can lend you up to $20 million for the purchase.
The 504/CDC loan program will involve an SBA-certified Development Company and a bank. Since there's more than one lender involved you may need to fulfill some additional qualification criteria.
4. When You Need a Micro Loan
Sometimes a small business might be too small or too new for an SBA lending partner to work with due to the low limits. Despite this fact the company might be experiencing robust growth and in need of financing.
SBA's microloan program helps such firms tap into the resources they need for growth. In partnership with non-profit organizations and community lenders, the SBA can finance you up to $50,000.
Since borrowers taking on microloans are still small and not established, they can pose a higher risk. The interest rate will, therefore, be slightly above market.
5. When You Need Working Capital
When a small business experiences tight cyclical cash flow problems it will need some working capital. The SBA helps small firms at various stages to improve their working capital situation to facilitate their multiple needs which can include:
- Recurring operational costs
- Purchasing inventory
- Seasonal cash flow gaps
- Short-term financing for contracts
Newly formed companies or those that are too small to work with typical lenders can tap the microloan program. The 7(a) program will help more established small businesses to assess working capital in line with their needs.
The CAPLines of credit program is especially useful for builders and other small firms contracting with the government. They can access it to get money from short term contracts.
What You Need to Qualify for SBA Lending
If your business requires an SBA loan, you need to find out what the conditions are. SBA funding can take longer than typical small business loans to get approval.
It takes up to 90 days to go from application to getting the funds in your account.
You, therefore, need to know all that will be required of you so that your application doesn't take more time than it has to.
Here are the things you need to fulfill to apply for SBA financing successfully.
Be Located in the U. S.
Any business that desires to seek SBA financing must be located in the USA or its territories. Besides, its operations must also be in the USA or its territories.
Be a For-Profit Business in an Eligible Industry
To qualify for any SBA funding your business must be a for-profit one. It should also be officially registered in the USA.
Owner Has Equity
For a business to successfully raise SBA funding its owner must have equity in it. The stake can be in the form of money that the owner has invested or their time.
Have Exhausted All Other Financing Options
The SBA requires that any business desiring to approach it for funding first seek alternative capital avenues. Only after it has failed to get funding from other financiers can it make its application.
Personal Background Information
The SBA will also require your personal background information as the owner of the business.
If you own more than 20%, the SBA’s lending partner might ask you to sign a personal guarantee on loan.
As you prepare to apply for SBA funding ensure you look up the full list of requirements to increase your odds of success.
You Are Still Liable If Your Business Defaults On An SBA Loan
Keep in mind that as part of the SBA guaranteed loan you will need to sign a personal guarantee. This means that in the event of default, the bank and the SBA will look to you to pay any balance personally. The SBA guarantee provides an incentive for the bank to lend to you, it does not absolve you of liability.
Contact us today for more insights on and SBA loan default and how you may be able to settle your debt with the SBA. Our SBA attorneys are experienced and aggressive and will provide assertive representation.