How to Mitigate Risk Using an SBA 7(a) Loan
Getting a loan from a traditional lender when you are a small startup business is next to impossible unless the lender is somehow guaranteed not to lose their investment. Enter the federal government and the Small Business Administration (SBA) to the rescue. Congress set up the SBA to help more people start small businesses by making loans available to them. Small businesses help drive the US economy, and they employ millions of Americans. Therefore, it makes good economic sense for the government to set up a program to help create more capital available – enter the SBA 7(a) loan.
The SBA acts as a guarantor for loans made to small business owners from traditional commercial lenders. Having the federal government take the majority of the risk helps bankers to justify making loans that would not ordinarily get approval. Banks can offer SBA 7(a) loans at low-interest rates to give businesses that are just starting or trying to expand a leg up in the competitive arena.
Getting an SBA loan is not extremely difficult, but you and your business associates will need to present a decent credit history when applying. It will probably work in your favor to also show a healthy, well thought out business plan. Taking the extra step of preparing a business plan shows lenders that you are a serious business person and not just a dreamer searching for funding. Lenders also like to see that you have invested some of your own money into the business before they hand out any cash. This “sweat equity” is further proof that you do not plan to fold up and quit doing business when times get a little tight.
Once the bank approves the loan, you are free to use the money for any legitimate business purpose. You will want to read up on the government’s definitions of what they consider the proper use of the funds dispersed from an SBA 7(b) loan. Getting approval is not all that hard; you have to make sure that you
have all the proper application form filled out correctly and that you, your partners and your business meets all of the criteria. An SBA loan could be just the shot in the arm your business needs to get moving in the right direction. You can use an SBA 7(b) loan for everything from paying off debt to free up monthly cash flow to cover daily operating expenses. The low fixed rate helps you to manage your costs and keep your cost of doing business low.