When you’re a small business owner looking for a loan, you may have questions about where to start. If this is the first time trying to secure a loan for your business, you may want to consider going after a U.S. Small Business Administration (SBA) loan for your business.
“While the SBA is not a fit for all businesses or circumstances, it can be a valuable financing alternative for startups, businesses undergoing significant acquisition or expansion, or businesses with a lack of collateral,” says William Dickson Jr., Senior Vice President and Commercial Lender at Northwest Bank.
“The time and cost of SBA financing can be easily outweighed by the benefits of longer terms and more flexible structures than conventional financing. When it comes to getting an SBA loan, preparation is key and working with experienced SBA lenders will make the process much easier.
Smart Business spoke with Dickson about how businesses can leverage an SBA loan for their needs.
What are some important things to consider when looking at SBA loans?
The SBA provides a variety of finance programs that can be particularly valuable for small businesses seeking funding for a startup, acquisition, significant expansion, under-collateralized loan request or higher risk loan request.
As with any loan request, preparation is key to success. The more detailed and well thought out your business plan is and the more details of your business and industry experience that you can provide, the easier the process will go.
Lenders also want to know and understand how you plan to use your loan, another important, but often overlooked consideration. It is also highly recommended that you meet with commercial lenders who have SBA-lending experience.
How does your current status or the nature of your plan impact whether an SBA loan is right for your company?
There are a number of factors that can determine whether or not an SBA loan is right for you.
Businesses under three years old are still considered new and therefore a higher risk, which may require your loan request qualify for an SBA enhancement.
An SBA loan might be a good solution if you’re looking to purchase an existing business with minimal collateral because it can help offset any lack of required collateral.
SBA loans can also provide term and structure flexibility. For example, where a conventional loan may finance an equipment loan for five years, under certain situations, the SBA might allow a business to finance equipment for up to 10 years. This can be a significant improvement to your cash flow.
If an SBA loan is a fit for your needs, what are some keys to maximizing its value?
Preparation is truly one key to maximizing your loan request; the more time you dedicate to crafting your loan request and preparing for questions that may come up, the better chance you have in obtaining the proper financing.
Other important aspects of the preparation process include addressing your ideal target market, trade area, location, any local competition, the number of existing employees or any new employees who could be hired as a result of the loan.
What are some misconceptions people have about SBA funding?
People often think the process is time consuming, that there’s too much paperwork or that SBA loans are expensive.
This is where it’s vital to work with experienced SBA lenders. They can walk you through the process and complete the necessary documentation in a timely manner. There’s really no more paperwork than most financing requests, and most SBA programs allow your fees and associated costs to be built into the loan request.
Spreading the fees and costs out over the life of the loan, especially if the loan terms are longer, actually make SBA loans a very competitively-priced financing alternative. ●
Northwest Bank is Member Federal Deposit Insurance Corp. (FDIC), Equal Housing Lender
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