So, you have a great idea for a business, and you are trying to sort out the financing. How can you get a loan, and where from, to finance your business? This all depends on your personal situation. For example, how long have you been in business? What is the nature of your business? What is your credit score?
There are a few options for people looking to borrow up to $50,000 USD.
The Small Business Association (“SBA”)
The U.S. SBA has several funding options for small businesses. One is the microloan program. The other is SBA 7(a) loans.
The SBA microloan program
What is a microloan? “smaller-size loans of up to $50,000 provided through SBA funding intermediaries.” The Small Business Association works with intermediaries to provide these loans to people looking to fund a small business project. According to the SBA, “Microloans are available through certain nonprofit, community-based organizations that are experienced in lending and business management assistance.”
Microloans are intended to help small businesses expand. To qualify, the small business must meet the criteria set by each intermediary. These loans usually have to be repaid within six years.
The minimum borrow is about $13,000 USD and the maximum is $50,000. Per the SBA website, while microloans cannot be used to pay off existing debts and buy real estate, they can be used to fund:
- Working capital
- Inventory
- Supplies
- Furniture
- Fixtures
- Machinery
- Equipment
Where to Apply for a Microloan
Participating microlenders will depend on where you live, state by state. So, you will have to do your research to figure out who the participating lenders are in your state.
In Georgia, for example, the microlender “Access to Capital for Entrepreneurs” is located at 3173 Hwy 129 North Cleveland, GA 30528, Tel: 678-335-5600.
In New York, there are two options. You can try microlender Accompany Capital120 Broadway, Suite 230 New York, NY 10271 Lostrovsky@accompanycapital.org 212-898-4130. Website https://accompanycapital.org/
You can also try Adirondack Economic Development Corporation website: https://www.aedconline.com/ Saranac, NY 12983
beverly@aedconline.com 518-891-5523
SBA 7(a) loans
The first logical question you may have is what is an SBA 7(a) loan?
SBA 7(a) loans are the SBA’s most popular loan type, it appears. The Small Business Association basically guarantees these loans when lenders issue loans to small businesses whose use of the funds will be for:
- Acquiring, refinancing, or improving real estate and buildings
- Short- and long-term working capital
- Refinancing current business debt
- Purchasing and installation of machinery and equipment
- Purchasing furniture, fixtures, and supplies
- Changes of ownership (complete or partial)
- Multiple purpose loans, including any of the above
Unlike microloans where the maximum amount you can borrow is $50,000, with SBA 7 (a) loans, the maximum loan amount for a 7(a) loan is $5 million! So there is a lot more flexibility with these loans.
What are the key eligibility considerations for SBA 7(a) loans? The lender will take into consideration the following criteria:
- What does the business do? What type of business is this and how does the business make money?
- What is the credit history of the borrowers?
- Where does the business operate?
According to the SBA website SBA.GOV , to be eligible for an SBA 7(a) loan a borrower must be:
- “Be an operating business.
- Operate for profit.
- Be located in the U.S.
- Be small under SBA Size Requirements
- Not be a type of ineligible business
- Not be able to obtain the desired credit on reasonable terms from non-Federal, non-State, and non-local government sources.
- Be creditworthy and demonstrate a reasonable ability to repay the
Frequently Asked Questions about SBA and SBA 7(a) Loans
1. Can you get an SBA loan with bad credit?
Yes
2. Can you pay yourself a salary with an SBA loan?
Apparently, the answer is yes, but since your salary will be subject to scrutiny, be sure that if you do take a salary, it is a reasonable one.
“One of the business purposes of SBA loans is to use the money as working capital, which includes making payroll. As a business owner and operator, you can collect a salary from payroll. You must pay yourself a reasonable rate for the services rendered. If so, you can use SBA working capital funds to pay yourself.” unitedcapitalsource.com.
3. How long does it take for the loan funds to be deposited into your bank account?
Anywhere from one week to a month, usually.
Other Ways to Obtain Financing up to $50,000 for Your Small Business
- Online Lenders seem to be a great option for a lot of borrowers. According to the experts, online lenders are a realistic source of loan financing for many small businesses. And these loans can be obtained relatively quickly, as soon as the next business day in some cases. There are some basic requirements to obtain these loans, however. One is that you are usually required to have been in business at least one year.
- Community and regional banksare another option. The experts claim that these institutions can “take a few weeks to fund a $50,000 business loan but offer expert advice and faster funding in the future” so this might be a good option for your business depending on your situation.
- Microlendersare another financing option for small businesses but if your credit is bad, this could be a problem. According to the experts, microlenders “sometimes offer business loans as high as $50,000, though the maximum loan amount for bad credit and startup programs might be lower.”
- Large national banksare yet another financing option for small businesses but this really depends on the bank. According to the experts, national banks with small business programs “sometimes also offer $50,000 business loans. But many prefer to work with large and midsize businesses.”
- Finally, Credit unionscould be a final resort for a small business owner, assuming that the small business owner is a member of the credit union. According to the experts, credit unions “with business loan programs often offer $50,000 — but you need to become a member to qualify.”
SOURCES
https://www.sba.gov/funding-programs/loans/microloans/list-microlenders
https://www.nerdwallet.com/article/small-business/sba-microloans
https://www.finder.com/50000-business-loans
Will My Loan Cover My Salary? – Entrepreneur.com | Entrepreneur