This is a guest blog post by Grindstone Coworking member Angel Melgoza. Angel is a fee-only financial planner. you can find out more about Angel and his company MyLife Financial at www.my-life.financial.
WHAT IS AN SBA LOAN?
The Rio Grande Valley is full of ideas, energy, and entrepreneurship. A lot of the time, some of these ideas are not realized because of the lack of education in funding options available to budding entrepreneurs. There are also business owners whose energy and passion fades away because of high startup costs that eat away at their pockets. This causes them to doubt themselves and think twice about their venture. As it is, being a small business owner is stressful and full of risks, but there are resources available to help alleviate the financial risk involved. Enter the Small Business Administration…
I should start off by telling you who the Small Business Admiration (SBA) is and what they do. The Small Business Administration is a government agency that helps provide support to small businesses & entrepreneurs in the form of counseling and loans. So, what is an SBA Loan? An SBA loan is a loan that is provided to small business owners by a local bank or lending institution that have partnered up with the Small Business Administration (SBA). A certain portion of these loans are backed or guaranteed by the SBA in case the borrower defaults on the loan.
SBA Loan vs. Conventional Loan: What’s the Difference
There’s not much of a difference between a conventional loan vs. an SBA loan when it comes to credit. Both loans require the borrower to meet certain credit requirements; that’s just the nature of seeking credit. Where they may differ is the flexibility in collateral needed as well as the length of repayment. In a conventional loan, banks have certain requirements that borrowers must meet (i.e. credit, collateral, cash flow, etc..) before they loan someone money because if the borrower defaults, the bank loses out. However, with an SBA Loan, these requirements loosen up a bit. Why? Because they are guaranteed not to lose as much money since the SBA is backing up, or taking on financial responsibility of a certain portion of the loan.
Different types of Loans
Not all business owners are in the same phase of their business or in the same industry so the SBA has different types of loans. The most basic is the 7(a) Loan Program which borrowers bust apply through a participating lender. This loan is for anyone starting up their business or looking to expand their operation. There are also loans that help small business owners that have been affected in disaster areas; these types of loans help endure losses that businesses attain through things like tornadoes, hurricanes, and floods. Another popular loan is the 504 Loan Program; this loan is meant to purchase fixed assets such as buildings, machinery, or do renovations on used buildings.
What do I need to apply?
Like any other loan, there is a loan process. The process for SBA loans is much quicker through a preferred lender of the SBA. Some of the things a preferred lender may ask you for are:
- Background and Financial Statement
- Profit & Loss Statement
- Projected Financial Statements
- Ownership and Affiliations
- Business Certificate /License
- Loan Application History
- Income Tax Returns
- Business Overview and History
- Business Lease
Want to know who can help you with your business venture? For a list of the SBA Preferred Lenders in the Rio Grande Valley, click here. (<– list coming soon)