Perhaps you are one of the thousands of people impacted during this current
economic crisis. You are considering starting your own business, but you are not
entirely sure what types of bank loans are available to you.
We would all love to just walk into our bank and sign our name to a loan agreement
and start our business tomorrow. However, this is unlikely to happen. Proper planning
and an understanding of business loans can help you get started with your small
Getting Started With Your Small Business Loan
Before you begin the process of applying for a bank loan for your small business,
you will need a well thought out, thoroughly researched business plan. Your
business plan should include enough information so that a lender will know that you
understand the operation of the business. In addition to the overall plan for your
business, you will be required to provide complete financial information.
Financial Information in Business Plans
Your business plan will not contain all of the financial information required by
a lender. Other things that your bank will require to provide a small business loan
- Purpose of Loan
- Length of Time Needed for Repayment
- Amount of Loan
- Personal Guarantee (will you provide)
When your bank reviews your business plan, they will also ask for a loan proposal.
Items that should be included in your financial proposal include:
Collateral - secondary source if you cannot generate income
Capacity - ability of your business to generate income to repay loan
Character - review of your personal financial credit
Small Business Administration Loan Guarantee Programs
is not in the business of lending money - instead, they guarantee portions of your
small business loan to a lender. These are the basics of the guarantee programs offered
through the SBA:
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7(a) SBA Loan Guarantee - The bank receives a partial guarantee
from the SBA that the loan will be repaid. These are the most common SBA loans and
the guarantees may be between fifty (50) and seventy-five (75) percent of the loan.
Special Purpose Loan Guarantees - Support export markets, help
firms affected by NAFTA and can help employees take ownership of an existing business.
Micro-Loan Guarantees - These are just what they sound like. Very
small lenders (typically private lenders) provide these small loans. Typically, these
loans are too small for a bank to undertake. The loan amounts are under $35,000.
You must prove you have been unable to get financing to qualify.
504 Loan Guarantees - This is an economic stimulus loan. To qualify
you must be able to demonstrate you can create or keep one job for every $100,000 that
you borrow. These guarantee programs are limited to manufacturing jobs.
If you are one of the millions who lost a job and are considering a small business
endeavor, you will more than likely need some type of financing. Small business bank
loans can help you get started. Understanding the proper category of your small business
loan can help you determine whether you qualify for a loan guarantee. Great credit, a
great knowledge of your business field and a strong business and financial plan are
all-important factors in applying for a small business loan.
See also: Peer
To Peer Loans