SBA Loan Overview

A small business administration loan can aggressively assist a new entrepreneur or an established business owner with expanding or developing their operations. The SBA was founded to provide loans to smaller businesses given that many banks have in the past reluctantly shied away from providing large amounts of credit to small business owners. This is primarily due to the fact that small businesses do carry a significant amount of startup risk and operating risk. As such, the government created the small business administration in 1953 with the intent to provide guarantees to individual borrowers so that a bank would feel far more comfortable providing capital to them. Most financial institutions love SBA loans given that approximately 80% to 90% of the total amount of principal is guaranteed by the federal government. As such, banks are able to generate a extremely high return on their investment as it relates to the capital was at that is at risk. Generally, most SBA loans carry a premium of two to five points over the prime rate. If there is a tremendous amount of collateral involved in the loan rate is typically two points over prime. One of the most important things as it relates to obtaining an SBA loan is that a properly developed business plan is going to be required. In almost all instances, lending banks require that a three-year financial statement is provided. This financial statement needs to include a cop and loss statement, cash flow analysis, balance sheet, breakeven analysis, and business ratios page.

Small business administration also requires that a complete demographic and competitive analysis is submitted as part of the overall loan application. One of the important things as it relates to developing a SBA loan package is that the owner is going to need to not only develop a comprehensive business plan but is also going to provide comprehensive financial statements as it relates to total assets, total liabilities, income in each of the last two years, and the anticipated revenues and profits generated by the business during the three-year period. This is one of the things that many entrepreneurs struggled to develop given that it is very hard to determine what the anticipated revenues and profits of the business are going to be when it is done on a pro forma basis. One of the ways that this issue can be remedied is that a business plan writing firm can be hired to assist the owner with the developing the documentation that is going to be required by the bank.

SBA loans are going to continue to increase in popularity over the next 10 years given that more people have turned to entrepreneurship rather than working for another individual. The Congress and federal government have worked to ensure that these loans can be provided quickly and with. One of the things that is interesting that has been developed over the past 10 years is the SBA express program which allows for much more streamlined lending protocol for companies that are seeking $100,000 or less. If these types of financial instruments are completely appropriate for individuals such as freelancers, attorneys, people starting small retail locations, and service-based businesses that do not need a substantial number of assets to commence revenue-generating operations. A CPA can be consulted in order to have a good understanding of what loans may be appropriate for any specific financial situation.

Prior to submitting a package to the SBA lending bank, a CPA should review all documentation including prior tax returns to make sure that they are accurate. The SBA typically takes about 60 days to 90 days to render their decision as it relates to issuing a guarantee for the business. Once this guarantee is acquired and then the individual can take it to any number of SBA enrolled lending banks in order to obtain a business loan. These financial institutions may require additional documentation beyond what was requested by the small business administration. As such, it is important to have all of your financial matters in order so that if there are additional requests for information they can be fulfilled very quickly. Generally, from start to finish it takes about three months to four months to acquire a SBA loan for a new business or for expansion purposes. These financial instruments are also available for individuals who are purchasing existing businesses.

Banks and the small business administration love to lend to individuals that are looking to acquire an existing business given that the risks related to a startup are eliminated. In the event that an entrepreneur requires a company they’re going to required to submit tax returns as well as a business plan. Beyond these two documents, full tax returns for each of the last three years for the company that is being acquired needs to be provided as well. The owner of the business that is being sold should furnish either the entrepreneur or the business broker with all necessary documentation so that an SBA guarantee can be acquired quickly once all other documentation has been produced.

The small business administration has developed very good programs that actively assist entrepreneurs with launching new business operations. They will remain as one of the mainstay government departments that assists with entrepreneurship and the development of small business and employment within the United States. Although control of Congress and the presidency changes hands quite frequently – almost all politicians are committed to the continued advancement of small businesses given that they create jobs in local communities.

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