Using an SBA Loan Guarantee to Help Finance Your Business

Using the Small Business Administration (SBA) to Help Fund Your Business Start-up

Many people starting into business find that they have a difficult time getting a bank to talk with them. You may be in that position, because of your credit rating or because you have limited collateral to put into the business. In this case, you might want to consider a Small Business Administration (SBA) loan guarantee to help make the funding possible. Here is how the SBA can help:

• What is the Small Business Administration (SBA)?
  The SBA is an agency of the U.S. government. It was formed in 1953 to help small business owners start and grow their businesses. The SBA has various programs and services and it operates from district offices in mid-to large-sized cities throughout the country. Programs include workshops and one-on-one advice for business owners.
  
  
• Does the SBA Loan Money to Small Businesses?
  The SBA doesn't directly loan money; it works with banks to guarantee loans to small business people who need financing for startup and business growth. Here is how the process works: You take your business plan to a bank. The banker may suggest that an SBA guarantee is needed. If you are approved for an SBA-guaranteed loan, the SBA then guarantees the bank that they will be paid back, up to 85% of the amount of the loan.
  
  
• How Do I Qualify for an SBA Loan Guarantee?
  Let's take the basic SBA loan, the 7(a). Here is what the SBA says about qualifying for this loan:
  

  In order to get a 7(a) loan, the applicant must first be eligible. Repayment ability from the cash flow of the business is a primary consideration in the SBA loan decision process but good character, management capability, collateral, and owner's equity contribution are also important considerations. All owners of 20 percent or more are required to personally guarantee SBA loans.

  What this means is that you must still have 20% to put into the loan as collateral, and you must be able to show that the cash flow from your business will be adequate to pay back the loan.
  
  
• Does the SBA Have Other Types of Loans?
  The SBA currently has these specific types of loans to provide assistance:
  
  • The Patriot Express Pilot Loan Initiative to assist veterans in starting or expanding businesses.
    
  • Other Special Purpose Loans for export businesses, employee trusts, pollution control, and other purposes.
    
  • Disaster Assistance programs to provide loans to help small businesses recover from disasters.
  
  
• Can I Pre-Qualify for an SBA Loan Guarantee?
  Yes, the SBA has a pre-qualification program through intermediary organizations. The organization assists the business owner to make sure the business plan is complete, and helps with the application.

If you are planning to apply for a business loan for startup or expansion, ask your banker if the bank is an SBA Preferred or Certified Lender.

Back to SBA Loan Programs Overview