Small business financing is an important part of any company’s start-up process. After all, how can one kick start a successful business venture without the capital to back it up? Luckily there are things in place to help make business dreams a reality; it’s simply a matter of understanding how business financing can work for you.
What Are SBA Loans?
SBA (or the U.S. Small Business Administration) is a government agency dedicated to providing loan guarantees and other support to help promote healthy business and company growth across the country. It was established in 1953 and has since helped secure over 20 million loans.
Often considered one of the easiest ways to secure small business financing for start-up companies looking to make their mark, it’s important to understand how they work. Small business financing can be risky, and the less ignorance displayed when applying for the loan, the better.
One important thing to remember when applying is this: these loans do not come directly from the SBA. They are primarily outsourced by banks and vendors that participate in the SBA program. This essentially guarantees you’ll be offered cheap and fair interest rates in the end, but individual terms may vary from bank to bank and vendor to vendor.
For this, we’ll be analysing the 7(a) SBA Loan Program in particular.
Picking It Apart
There are various reasons you may find you and your company looking for small business financing. To help clarify some of the reasons, let’s pick it apart a bit.
Equipment Financing
It almost goes without saying, but you may find yourself in need of equipment for your start up business. Luckily, if your company is focusing on any of the following:
- Construction
- Office and Computer Work
- Food Service
- Landscaping
- Transportation
There are many financing options available through SBA lenders to companies needing equipment financing. Let’s face it- there’s a good chance your business falls into one of the above categories.
BAL (Business Acquisition Loans)
Business Acquisition Loans are arguably the trickiest to score since the Great Recession in 2008 (a dramatic fiscal climate that shook the business world to its core, making it even harder at times to secure small business financing). That’s not to say it’s impossible- if you can manage lower financing rates (a company that once financed up to 80{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616} will more than likely not go above 50{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616}) and larger down payments, you’ll be fine.
Commercial Loans
Commercial loans are arrangements typically used to finance major expenditures or help recoup operational costs that could potentially sink you into crippling debt. These are used for:
- Purchasing Real Estate
- Refinancing Commercial Real Estate Assets
- Refinancing Businesses With Real Estate
Due to the nature of these types of loans, making deals and structuring agreements can be difficult and at times.
The Inner Workings of Fees and The Interest Rates (aka The Boring Stuff)
A guarantee fee is a fee based on the loan’s maturity and the dollar amount guaranteed, not the actual dollar amount being loaned. The lender will pay the guarantee fee initially, but they retain the option to pass the expense on to the borrower at closing.
For any loan under $150,000, the feeis set at zero percent. Any loan greater than that but with a maturity of one year or less, the fee is 0.25{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616}. On loans with a maturity greater than one year, the fee is at 3{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616}. If the loan is more than $700,000, the fee is 3.5{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616}. There is an additional fee of 0.25{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616} on any portion of more than $1,000,000.
Typically, SBA loans come with fixed or variable interest rates. It is the bank lender who determines this part of the process depending on things such as your current credit score and the current nature of the loan arrangements. To help protect you, SBA has implemented a cap on loan rates by limiting what a bank is allowed to add to the top of the base interest rates.
To delve a bit deeper, if your loan term is less than a seven year period you’ll wind up paying a rate of roughly 6-13{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616}.
Where to Find Your Loan
That’s certainly a lot of information to swallow at once- all you need to do is jump start a corporate dream, right? Luckily, there are numerous fine lenders available that specialise in helping secure small business financing for companies (Biz2Credit being a great example), and even more information outlets available online that can help you understand the technical jargon of the finer details of these loan agreements.
Primary keyword: small business financing
LSI keywords:
Variants: secure small business financing, small business financing for companies, looking for small business financing
Antonyms/Synonyms: SBA Loans, business venture, financing, Small Business Administration, lender, bank lender, loan arrangements, commercial loans
Sources:
https://www.fundera.com/business-loans/sba-loans
http://fitsmallbusiness.com/sba-loan-rates/
https://www.nerdwallet.com/blog/small-business/start-up-business-loans-for-bad-credit/
https://www.shopify.com/blog/low-investment-business-ideas
