I have been in the banking industry for 7 years and I can say that times have changed when it comes to applying for a small business loan. Especially for startups, I think business people should know what it is before applying for a small business loan.
No business plan or loan. The entrepreneur must know exactly what to make money from. All this must be put on paper and explained for the benefit of the lender: summary of the activity, management experience, market study, operational part and 3 years of cash flow projections. You can find a free business plan and a cash projection form on the SBA website. The phrase ‘give me the loan and I’ll find out about my business’ will get a quick response ‘no’.
Financing starts with a bank or a credit union only with the SBA guarantee. The most popular SBA program applied to start funding is 7a. The program is only a guarantee, not an SBA loan. The financial institution is the body that guarantees the loan and makes the final decision. SBA 504 is also available but only applies if real estate is purchased. 7 (a) the program is the most popular and the most used because it is aimed at tenants.
In the current global recession of 2010, you should have at least 30% cash flow. It is not possible to borrow money from your family, credit cards or a line of credit for home ownership. This will be verified by the bank and the SBA before or at the close. And believe me; I saw a little fence explode at the end because of this. If you say the money is available, you will be asked to provide a signed and documented gift letter.
Since August 2010, the SBA 7a program can guarantee up to 85% on guaranteed start up business loans up to $ 150,000 and 75% on loans over $ 150,000. Remember that if your total start-up cost is $ 300,000, you will still need to cut by at least 30% and the bank will finance the remaining $ 210,000, which means that the SBA guarantee is only 157 $ 500. American (75%). The 75% guarantee depends on the portion of the loan and not on the total initial cost.
What are the Terms and Conditions for guaranteed start up business loans?
Under the terms of the SBA for 7 (a) loans that generally do not involve a real estate guarantee, it can be up to 10 years. Financial institutions generally want to maintain these conditions in 5 to 7 years. So if you are starting a restaurant, beauty salon, or yogurt store, calculate your expectations based on a 5 year payback period.
One of the good things about the 7 (a) program is that SBA will charge the highest rate a bank can collect: Fixed-price loans of $ 50,000 or more should not exceed the base rate plus 2.25% if the term is less than seven years, and the base rate is plus 2.75% if the benefit is seven years or more. For loans of a value between $ 25,000 and $ 50,000, the maximum rates must not exceed the prime rate plus 3.25% if the term is less than seven years and the prime rate plus 3.75% if the maturity is seven years or more. For loans of $ 25,000 or less, the maximum interest rate should not exceed the prime rate increased by 4.25% if the maturity is less than seven years and the prime rate increased by 4.75% If the term is seven years or more.
Even if the loan has an SBA 7 (a) guarantee and you can reduce it by at least 30%, most banks still want you to provide collateral. Again, keep in mind that guarantees from financial institutions such as office equipment, restaurant tables, tanning beds or your stock of ceramic mugs are largely worthless. When the bank says ‘guarantee’ it means real estate. And yes, it must have equity and yes, you must pledge it. A statement, ‘I don’t promise my house’ will give you a quick answer, ‘No’.
What is the best source to apply for a startup loan?
The best source to apply for a startup loan is the SBA website. She has examples and explanations of what to know. It also provides you with valuable references to other helpful resources such as local nonprofits. Also always meet a banker in person. If you just go online and place an order or go to a broker, you will get the same quick ‘no’ answer. And yes, you will have to take out an unconditional personal guarantee and there is no way to do it.
Start a franchise or buy a franchise with no difference in the bank. If you start Quiznos, the same rules will apply as if you were starting a Billy Bob sub-store. If you want to apply for an SBA 7a loan, the first thing you need to check is whether this franchise is on the list of SBA approved franchises. Just go to Franchise registry and you will find out in a few minutes.
SBA 7 (a) Loans have fees and these fees are prohibitive. It is not cheap. And no, if you’re a beginner, the bank won’t even consider a conventional loan. List of fees: For loans of $ 150,000 or less, a 2% guarantee fee will be charged.Â
Lenders are again allowed to keep 0.25% of the initial guarantee charge on loans with a total value of $ 150,000 or less. For loans over $ 150,000 but up to $ 700,000, a 3% guarantee fee will be charged. For loans over $ 700,000, a 3.5% guarantee fee will be charged. For loans over $ 1,000,000, an additional guarantee fee of 0.25% will be charged for this portion of more than $ 1,000,000. A portion of $ 1 million or less will be charged a 3.5% warranty fee; the bulk of $ 1,000,000 will be billed at 3.75%.
Conclusion
And if you don’t want to go through this process and get into debt, you have to come up with a unique idea like you did. Take a look at my website, it only took me $ 200 and a few weeks of work to compile the site. The end result can be as profitable as starting a small business, but with less risk.
