It seems Congress can agree on something, and luckily for entrepreneurs, it's the necessity of small business loans. According to Reuters, on July 28, 2015, President Obama signed legislation that…
- Renews federal loan guarantees for small businesses.
- Increases the Small Business Administration's 7(a) loan guarantee program's cap from $18.75 billion to $23.5 billion.
- Waives fees for US veterans applying for certain SBA loans.
Why the speedy action? Turns out, the program was exhausted faster than expected, thanks to heavy demand from the small business community. The report states the SBA had to suspend new loans because the cap was reached after receiving $1.7 billion in applications in a single week. That inspired Congress to move quickly and raise the SBA lending limit in less than a day.
We were surprised, too.
All this is good news for small-business owners, especially ones who are currently looking for financing. The most attractive part of these SBA-backed loans is that they allow small businesses with short credit histories to obtain financing and may even have lower interest rates.
Interested in getting your capital on? Let's take a look at how you can get the ball rolling on your very own SBA-guaranteed loan and why loans are their own form of risk management.
Applying for an SBA-Backed Loan
The first thing you need to know is that the Small Business Administration is not a lender. Rather, it creates the commercial loan criteria for its lending partners, and the hope is these requirements make it easier for small businesses to get financing on reasonable terms. In turn, lenders get a guarantee from the SBA that the businesses will repay the loan, which eliminates some risk.
That said, any loan application requires some serious paperwork, so brace yourself. According to the SBA's 7(a) Loan Application Checklist, you will need…
- SBA loan application form [PDF].
- Personal background and financial statements.
- Business financial statements.
- List of subsidiaries and affiliates.
- Business license.
- Records of past loans.
- Income tax returns.
- Your résumé.
- A brief history of your business.
- Commercial lease.
See the full checklist for helpful links, explanations, and guides.
And for more information on the SBA's lending tools, check out our post "SBA's LINC Connects Small Businesses with Potential Lenders."
Steady Cash Flow as a Form of Risk Management
As you know too well, your business runs on money. That sweet, sweet green is the wind at your sails. Without it, your boat is at the mercy of the churning sea.
You've likely felt the pressure of trying to make ends meet on a shoestring budget. But you also know constantly struggling to stay afloat means there's no margin for error. If a sudden accident requires a monetary fix, it could be lights out for your business.
An inconsistent cash flow also keeps you bogged down when you should be setting your sights on growth. That's why SBA-guaranteed loans can be a lifesaver for your new business. That financing can give you the cushion you need to get a team together, reach more clients, and stretch your sea legs.
SBA-backed loans are enticing because they usually have lower rates and are regulated, but there are other financing options available – some are riskier than others. To learn more about the pros and cons of alternate forms of financing, read "The Funding Option 98% of Small Businesses Haven't Tried."