If you’re a business owner, chances are you’ll need to seek funding at some point down the line. A huge portion of business owners are turning to theSmall Business Administration (SBA) to seek their funding, and it is a great idea if you can follow these guidelines. On the other hand, SBA loans can also be a horrible idea if you don’t meet certain criteria; causing lenders to deny loans or offer extreme interest rates that are not affordable for most. There’s no need to worry, because following what entrepreneur.com calls “The 5 C’s” will put you in the position for the best loan opportunities at the best rates.
Here are five factors you need to obtain an SBA loan:
Obviously, SBA lenders will not fund 100% of your business. Ideally, if you’re starting a new business, you will need to contribute at least 30% of the funding. And if your business is already running, you should contribute at least 20% of the capital. This factor is a one of the bare minimums needed to get funding. It’s also important to keep in mind that using borrowed money (like a home equity line of credit) for capital will result in banks denying the loan.
The ability to generate income is also an important factor. Banks need to see that you have (or will have) the ability to get money to pay them back. For a business that’s starting out, banks will look at both your personal income and the projected business income. And for existing businesses banks will make sure that the last three years have resulted in a net positive income.
In addition to assessing your company, banks will also scrutinize your personal background. Banks will want to see that you have experience in your business’s industry, particularly with running a business or getting profits for a business. They will also check to see if you have been involved in any criminal charges or are delinquent in child support payments.
Many are surprised to learn that SBA lenders will secure capital for a loan. This often comes as a shock because SBA loans are bank loans backed by the government. However, if you have “worthwhile assets”, such as a home with a value greater than 20% of the business, the bank will require you to use it as collateral. So, if you have this sort of collateral you have to be prepared to face the risks of losing it to the bank if you cannot pay. Also, business partners have to come to an agreement if one owns collateral like a house and the other doesn’t.
Arguably one of the most important factors for a loan is your credit. Business owners can get approved for the best loans and rates by staying on top of both their business and personal credit, since the SBA looks at the FICO SBSS credit score which is a combination of both. On the other hand, having poor/limited scores for either will greatly reduce any opportunities with the SBA, or result in much higher interest rates. Borrowers should also take advantage of a reputable credit restoration company if they have poor credit.
North Shore Advisory’s credit restoration process can cause credit improvement in as little as 7-50 days and allow owners to apply for the best loans after the process. Contact our credit experts for your free consultation.