Government Small Business Loans
Government small business loans help put your own business within reach. First there’s the quest for a decent location, then comes building a customer base, followed by all the initial hiccups of generating a cash flow before your business grows roots and gains momentum. The beginning of a business is crucial because it’s when you gain or lose market credibility. If you disappoint your customers, they may not give you a second chance. If your business gets off to a rocky start (most do), and you believe you can recover but need further financing to make this happen, you can apply for government small business loans.
For-profit lenders are reluctant to issue loans to anyone who does not have a strong credit report and financial history. That is not the case with government small business loans. Obviously, a decent credit report is important, and you will have to follow the guidelines regarding the repayment period and the interest rate set by the government, but usually the interest rates charged by government loans are lower than those you could expect in the private sector.
More about Government Small Business Loans
Government loans are typically offered through banks and credit unions that partner with the Small Business Administration (SBA). The SBA is a U.S. government body, with the motive of providing support for small businesses and entrepreneurs. For each loan authorized, a government-backed guarantee offers serious credibility, since the lender knows that even if you default, the government will pay off the balance. These loans can be applied to a number of uses, such as:
- Purchase of new equipment, machinery, parts, supplies, etc.
- Financing leasehold improvements
- Commercial mortgage on buildings
- Refinance existing debt
- Establishing a line of credit
Government small business loans benefit both small businesses and the lending agency. For small businesses, it is beneficial because this is money capital they may not have access too. For banks, the loan’s risk is decreased due to the loan being backed by the SBA.
Different SBA Government Loans
The SBA extends financial help through various lending programs it has to offer. Some of the more popular loans are:
- 7(a) Loan Guarantee Program: aimed primarily in helping a small business start or expand its services. The maximum size of such a loan is $5 million.
- MicroLoan Program: mostly used for short-term purposes, such as purchase of goods, office furniture, transportation, computers, etc. The maximum amount is fixed at $50,000.
- 504 Fixed Asset Program: featuring fixed-rate and long-term financing, these loans are aimed at applicants whose business model will benefit their community directly, either by providing jobs or bringing needed services to an underserved area. Again, the maximum amount is $5 million.
- Disaster Assistance: under this program, loans are sanctioned to renters or homeowners with a low-interest, long-term plan for the restoration of property to its pre-disaster condition.
In most cases, maintaining a good business credit report is enough to qualify. In addition, it instills confidence not only in the lender, but also in you. There is at least one SBA office in every state in America. If you contact them regarding the startup status of your business model and plan, you can get started on a government small business loan that will give you the financing to make your dreams a reality.
How to Get a Business Loan
Sooner or later most small businesses need to know how to get a business loan, whether to get the operating capital for business startup or to finance an expansion. But whether you re approaching a bank or a friend for a business loan the lender will have the same expectations.
You can greatly increase your chances of successfully securing a loan by being prepared to meet those expectations.
Put yourself on the other side of the desk for a moment.
If someone asked you for a small business loan, you d want to know exactly why he or she wanted the money and what the chances were that he or she would repay the loan in full and on time.
The key to getting a loan is preparation. First, gather together the documents that will help persuade the lender that a business loan is necessary and that you are a good risk.
- A business plan – The business plan shows the lender not only why you want a small business loan but what you plan to do with the money. Don t have one yet? Here s a simple business plan template you can use.
- Cash flow projections – What s the first question any lender has? Will you be able to repay the loan? Your business s cash flow projections give lenders concrete financial data that they can use to assess this risk.
- A statement of your personal financial status – A list of your personal assets and debts to give the lender a fuller financial picture.
You may also need these documents:
- Past business tax returns – If your business is established and you have past business tax returns, it s a good idea to take them with you. They ll give the lender a better idea of how your business is doing financially.
- A credit rating report – Basically, you establish a credit rating by buying things on credit and paying back the money you owe. Your loan repayment history plays a big part in establishing your credit rating, but all your credit dealings make up the history that s used to determine your credit rating.
It s not necessary that you include a credit report with your small business loan application; it s easy enough for potential lenders to check your credit rating. But if you don t know what your credit rating is or suspect your credit rating is tarnished, you may want to get one.
In the U.S., you can get a free credit report once a year through the website AnnualCreditReport.com. For more information, see How to Get a Free Credit Report.
In Canada, you can get a free credit report by contacting one of the two credit reporting agencies, TransUnion or EquiFax Canada. To receive your free credit report you will need to mail or fax one of these companies a request along with copies of two pieces of I.D. Note that you will not be able to get a free credit report through the website of either company; you will be charged a fee for an online report. CreditKarma provides free online credit reports through much of Canada.
The credit report you receive will include information on what to do if you find errors in the report. If you have a poor credit rating, you will want to take steps to repair your credit rating before trying to get a business loan.
Making the Presentation to the Lender
The next step in how to get a business loan is to persuade the lender that your business is viable and you are a good credit risk.
You need to prepare in advance to make a winning loan presentation.
Start by considering the lender s point of view. You want money. But he or she is most interested in the answers to these two questions: What are you going to do with the money? and Are you a good risk? , and to make a successful business loan presentation, you need to come up with the right answers to these two questions.
Answering the first question means being fully conversant with all the details of your business plan and being able to point to the relevant financial statements, charts or graphs that will help convince the lender that you need the amount of money you re asking for to do what you want to do.
Answering the second question means having already given some thought to the credit risk you represent to the lender and being ready to address their concerns.
To get a small business loan, be prepared to tell your potential lender:
- What collateral you have – Collateral refers to the tangible assets that you are willing to put up to secure the loan. These assets might be equipment, a house, a car – something of value that you own. If you fail to repay the loan, then the proceeds from the sale of the assets are used for repayment.
- How much money you re personally willing to put into the business – Being willing to risk your own money shows the lender that you re committed to the enterprise.
- Your expertise and/or experience in your chosen field – Because the success of your business is dependent on this to some degree, any potential lender will want to know more about you. Be prepared to talk about yourself when you apply for a small business loan – your background, your expertise, and even your aspirations.
How to Get a Business Loan? Be Prepared
Your chances of getting a business loan will be greatly improved if you have all your documents in order and are prepared to assuage the lender s concerns about loaning you the money. Think of it as a presentation to an important client or customer, and you ll have a better chance of success.
Read more about getting a business loan: