As an entrepreneur, you may find it challenging to meet the requirements for securing additional funds to invest in your startup. Most loan providers consider lending money to small businesses to be a risky venture as they often lack the prerequisite high credit score or security to back them. Though it may be challenging to acquire loans from conventional monetary institutions, you can opt for SBA loans. The U.S Small Business Administration works through various lenders to issue several SBA loan types to startups at low rates and favorable terms. Here is a guideline that may help you in obtaining SBA loans.
Understand the Types of SBA Funding for Startups
It is offered under the SBA Microloan Program, whereby small companies stand to receive up to $50,000. For a start-up to qualify, it should have a solid business plan and prove that it is a profitable venture. Its rate varies between 6.5% to 13% and often has a maximum payment period of 6 years. Funds obtained from microloans are strictly used to acquire what your business needs to operate, such as equipment, inventory and raw materials.
Standard 7(a) Loans
The SBA 7(a) program offers up to $ 5,000,000 to startups. Its high loan amount and increased flexibility of use make it a preferred source of financing by small business owners. You may use the funds to purchase property, inventory, repay other debts and carry out the renovation. The debt’s repayment terms depend on the borrower’s ability to reimburse it and how the funds are used.
SBA Community Advantage Loans.
The SBA Community Advantage program has similar rates, conditions, and range of use as the SBA 7(a) program, with a few minor variations. One significant difference is that you gain access to a maximum amount of $250,000. Despite the significantly reduced maximum amount, it is ideal for businesses set up in low-income areas.
Requirements When Securing an SBA Loan
For you to be eligible for SBA loans, there are a few minimum requirements that should be met. Your business must be situated in the U.S and must solely be used to earn a profit. The borrower is required to convey a reasonable motive for seeking the loan and should have only resorted to SBA loans after failing to qualify for conventional loan types. Generally, an average credit score of not less than 680 is required but may vary depending on the lender.
By first understanding the available SBA loan types then checking on the general requirements assessed during their acquisition, you may be well on your way to acquiring an SBA loan.