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Since I’ve never had any trouble obtaining a home mortgage, credit card, or auto loan, shouldn’t I be able to easily obtain a loan for my small business?

Obtaining a small business loan is not the same as getting a personal loan. It is much more challenging to obtain a loan for a small business than a loan to purchase a home or car. You should not assume that just because you easily obtained a personal loan that you’ll be able to obtain a small business loan. Business loans typically take more time, require more documentation, and are more highly scrutinized. Or, you may try getting a mortgage against your home equity and using it to invest in your business.

What is an SBA loan and how do I get one?

An SBA loan is a loan that has been guaranteed (backed) by the U.S. Small Business Administration. The guarantee assures the lender that it will be repaid a portion of the money it loans even if the borrower fails to repay the loan. As a business owner, you will make a request to a lender (usually your local bank) for funds needed for your business plans. The lender will evaluate your request and decide whether it can make the loan to you on its own. If a lender feels the request has merit but cannot make the loan without additional support, then the lender can request a SBA guarantee. SBA considers issues such as collateral, credit, equity, and loan repayment ability when making a determination on a loan. SBA does not provide grants to small businesses. With the exception of disaster loans, SBA does not provide direct loans. Your SBDC consultant can provide more information on SBA loans.

How much money can I borrow? Is it possible to get 100% financing for my business?

How much you can borrow is a decision that rests with your lender. Some criteria your lender will consider are how much money your business plan says the project will require, how much collateral or personal investment you are willing to put into the business, and, our personal and business credit history. As you develop a business plan, you must gather the appropriate financial data to make informed projections regarding startup costs (or expansion costs for existing businesses). These projections should show you how much you need to borrow and help you determine your ability to repay the debt. You are unlikely to obtain 100% financing for your project from a lender. Lenders expect the borrower to share some of the risk and typically require an individual to cover at least 20% of the financing cost to start a business. Some banks will require an even larger owner equity injection depending on the industry or type of business. The equity you have or will have in the business will also be a factor.

How can I find out what my credit score is?

Always get and review your credit reports, which you can do at no cost to you at

What types of grants are available to help me start my business?

Grants to start a business are extremely rare. They likely involve very high tech research for government agencies. Ask business owners you know and odds are you won’t find one that started with a grant. As the old saying goes, “It takes money to make money.” This is particularly true when you are thinking about starting a business. You will need to identify how much money you’ll need to get started. Expect that you’ll have to provide 20-30% as your investment in the business because 100% financing is not likely to be available. Ask your SBDC consultant about any grants they may be aware of. Be extra careful of scams.

What do I need to get a business loan?

In order to get a loan, you will need at least three years worth of tax records (include tax records for the business if you are in operation); a personal financial statement, good credit and copies of any outstanding contracts (for example, your lease). Depending on security, the lender will usually want to see a thorough business plan that includes cash flow projections, a market analysis and an operational plan. Your SBDC consultant can help.

Does the SBDC offer loans?

No, the SBDC does not offer loans. Our services are technical and educational in nature. SBDCs will assist in developing business plans, calculating financial projections, comparing loans, and preparations to meet with and selection of a lender.

What alternatives are there to financing a business?

Committing your own funds is often the first step in financing. It is certainly the best indicator of how serious you are about your business. Risking your own money gives confidence for others to invest in your business. Think very carefully before you take on partners or investors in a business. Hire an attorney.

What financing is available when your credit rating is bad or you have a bankruptcy?

Unfortunately, traditional financing options are very limited and often nonexistent. At best an individual may try to work with a micro-lender or economic development organization. Poor credit will still be an issue. Other alternative financing options should be explored such as friends and family members as investors. Improving your credit history and putting some time between the problem and new credit may work. Be very careful about scams and stay away from predatory lenders who will want access to your bank accounts.

How should I prepare to meet with a business banker?

Set an appointment. Write down why you need the loan and how much you need to borrow. If you do not have three years of history with the business, are not making a profit, or don’t have substantial security to offer, be prepared to be turned down. Gather a copy of your plan and other documents. Your SBDC consultant could be helpful with this step. An alternative lender may need to be considered.

Do you have a list of commercial lenders?

Your SBDC consultant can refer you to commercial lenders.

What are the risks of borrowing from a lender I located on the web?

Many. Please see an SBDC consultants before proceeding. We have run across more unscrupulous lenders on the internet than we have good ones. You may not have normal consumer protections with business loans. High rates, fees, access to your bank account, high pressure, the inability to pay them off, and other problems abound.

Does the U.S. Small Business Administration (SBA) make business loans?

For the most part, NO. The exception is after a disaster when they may make direct business loans. They do however; guarantee certain business loans made by commercial banks.

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