SBA 7a Loan- What You Need To Know
Loan Program - SBA 7(a) Program Target Borrowers/Businesses For this Program- Many
"general" businesses and business purposes may be done under this program. The money can be used for start-up, expansion, working capital, capital improvements as well as inventory and other types of uses{. The loans ARE NOT made directly from the SBA, but rather, are guaranteed by the SBA against default for a percentage of the total balance. The actual loan is made by a lending institution such as a commercial bank or what is known as a "non bank" lender. The amount of the guarantee can range from 50-90% depending on the applicant. Keep in mind that most banks will only go to the SBA loan programs after they have pulled business and personal credit worthiness of the application. Because most guarantees are in the closer to the 50-75% range, many banks may see an applicant that meets the SBA qualifications and still opt to NOT make a loan. This is especially true in the wake of the credit crisis of 2008, as banks reduce their lending policies even for formally "qualified" applicants. Types of Documentation Needed-
Executive Summary of all principals explaining their qualifications for running the business.
"Statement of Personal History" from the principals of any application explaining their past accomplishments, accomplishments and attesting to their character, paying their debts, and abiding by the laws of their community
Formal Business Plan- that shows a doable and realistic timeline to business purpose, strategy execution, and a path to profitability and ultimate repayment of the loan. This document should also specifically outline how the funds will be used to help generate revenue to repay the loan and make the business viable. The more specific a business can be here, the better.
Statement of Personal Financial Condition-This document should show the current debts, assets and liabilities of all principals of the business and should be audited by a CPA if possible.
Financial P & L of Business- A Profit & Loss Statement should also be produced showing current assets, revenues and liabilities of the business. If the loan is for a startup, it should be a pro-forma projection of these numbers and reviewed and/or audited by an accountant.
Credit Report-This will be obtained on all principals as almost all SBA loans will require a personal guarantee as well as business guarantee of repayment. This means that if the loan defaults, it will be listed negatively on the credit report of all principals. All principals should obtain a free copy of their credit report is possible prior to applying to understand any issues that may be present prior to applying.
If you have been turned down for an SBA loan, or don't believe you would be approved, see the links in the resource box for further alternatives.
SBA 7a Loan- What You Need To Know
By: Neal
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