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Small Business Administration Loan Applications Made Easy

Thinking of going to the Small Business Administration (SBA) for financing? This article is for you.

One of the SBA's best-known functions is providing access to capital — something small and beginning businesses often need help with. Starting a new business can be risky, after all, and most bank loan officers don't like risk.

To be clear, the SBA doesn't actually make loans; it guarantees loans made by banks. When people say "SBA loan," they're referring to a bank loan backed in part by the SBA.

The idea is that banks will be more willing to help finance small, often untested businesses if they can recover at least a portion of the loan in the event of default. Many banks, large and small, participate in SBA loan programs; chances are there's at least one in your area.

The SBA offers several loan programs. Which loan is appropriate for you will depend on the type and circumstances of your business. Here are a few of the most common programs.

7(a) Loan

Named for Section 7(a) of the Small Business Act, this is the most basic and popular SBA loan. Financing can be guaranteed for a variety of general business purposes, including working capital, machinery and equipment, furniture and more.

CDC/504 Loan

This program is a long-term financing tool, providing small businesses with fixed-rate financing to acquire major fixed assets (including real estate) for expansion or modernization. Intended to foster economic development in a community, CDC/504 loans are used in combination with traditional bank loans and equity provided by the borrower. (CDC stands for Certified Development Company, the nonprofit entity that is certified and regulated by the SBA and facilitates these types of loans.)

Microloan

This is a small, short-term loan (with a $50,000 maximum) made available through special intermediary lenders. The intermediaries receive funds from the SBA, and each has its own lending and credit requirements. Typically, they require some type of collateral and a guarantee from the borrower. Intermediaries also provide business training and technical assistance to borrowers. Before receiving a microloan, you may need to complete training or planning requirements.

You can get much more information on SBA loans from a local SBA district office — find yours here.

Preparing Your Application

If you decide to apply for an SBA loan, preparing the correct information is critical. Some of the most important documents include:

  • Loan application form (SBA Form 4)
  • Personal background and financial statement (SBA Forms 912 and 413)
  • Business financial statements (current profit-and-loss, and projected income and finances)
  • Business license or certificate
  • Personal and business tax returns for past three years
  • A brief history of the business and how it will be helped by an SBA loan

Download a comprehensive checklist of application materials.

The SBA is a great financing resource for small businesses that otherwise might not qualify for loans. Keep in mind, though, that the money will still be coming from a traditional bank or lending institution. Being prepared with the correct information and forms along with a clear business strategy is crucial to get the financing ball rolling.

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