SBA Loans – Turning Small Businesses Into Big Profits

On the 27^th of September 2010, President-elect Barack Obama signed a legislative order for SBA loans, dubbed as the Small Business Jobs Act which provides that an additional amount of $505 million dollars should be added to the Small Business Administration so that it could fund $14 billion more to the small businesses that need it. However, due to the vast number that applied for it, the fund is nearing exhaustion and only a few applicants in the loan queue gets approved lately.

If you are planning of putting up a small business and you need $5000 cash or more, then applying for an SBA loan or any of its three types would be best for you.

The law on SBA loans state that you should have applied for a private lending source before [and was turned down] before you are considered eligible for an SBA loan. In the case of being denied of an internet loan such as poor credit instant loans from a loan site, your application will be reviewed for further consideration.However, we have to warn you that applying for an SBA loan would take long, considering the number of applicants that are currently on the SBA queue.

Subclasses of SBA Loans

There are three types of SBA loans that you can apply for and each one of them has its own eligibility criteria.

• 7(a) Loan Program – this is the type of small business funding geared to help businesses that involve exporting, rural businesses, and other types in the same category. This also includes special purpose loans which are actually funds available for businesses that deal with employee stock ownership plans and pollution control projects, or any special purpose business that is deemed eligible for a 7(a) loan. Another possible intention in getting a 7(a) loan is using the money for refunding, reopening, or modernizing an existing business.
• CDC/504 Loan Program – if ever you are involved in a business that promotes community development, this loan will fit you best. The CDC (Certified Development Company, a non-profit private corporation), in conjunction with the 504 program is directed to provide long term finance for businesses that aims for a community’s economic development. If you are granted with a 504 loan, you can use this money to buy land or existing building; but never for real estate or speculative businesses.
• Microloan Program – as the name implies, it is available only for very small businesses like non-profit child shelters and other similar projects. Usually, microloans only range from $13,000 – $50,000 depending on the nature of the business run by the borrower. It may be used for establishing capital; or the purchase of supplies, furnishings, and equipment. It can never be used to refinance another loan or for buying real estate.

What To Bring:

If you are planning to take out an SBA loan from your lender of choice, you should bring the following documents:

• Detailed Business Plan – a document which includes a description of your business, annual income, number of employees, the period of operations, and the structure of ownership; whether it is sole proprietorship or cooperative.
• Collateral – a document that will secure the loan, including a description of your planned equity in the business and if you have the potential to loan funds for your business. Most SBA lenders prefer that borrowers pledge a 20% equity to their business.
• Loan Request – a written document stating the type of loan you want to get and how you intend to use the fund, i.e. $3,000 loan for store renovation.
• Other Documents such as personal and business financial statements; and management resumé which enumerates the names and positions of the people who will be involved in the business.

As for now, the application for SBA loans is halted due to the exhaustion of the fund resources and the multitude of people who want to take out any of its programs. But we’re sure that in the future, this help from the government will resume operations because there are still a lot of worthwhile projects that needs funds to operate.

Do you have other solutions in mind for people who want to start their own small business yet they lack the capital? If you do, we would like to see them in the comment box below.