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Note, however, that SBA does not provide direct loans. Rather, the agency
provides guarantees to loans availed through SBA's partner lending institutions,
which includes many community banks. The applicant must satisfy the lender's
requirements before he or she can ask for a guaranty from the SBA, unless the
borrower is deemed prequalified based on the person's character, credit,
reliability and experience (prequalification is for loans $250,000 or less).
SBA provides a number of loan programs for most business purchases, including
purchasing real estate, machineries and equipment, inventory, or working
capital. Some loans focus on assisting businesses affected by specific economic
conditions, such as those affected by defense cuts, and those at risk due to
changed trade patterns with Canada and Mexico. There are also a number of loans
for small businesses engaging in export and international trade, while some
loans are geared for environmental concerns.
To avail of SBA loans, the borrower must meet these criteria:
1. The
borrower must have a stake in the business.
The SBA wants to see those applying for credit to have invested in their own
business. In SBA's view, business owners who have put their own money into the
venture are much more likely to push hard for the success of their business.
Depending on the loan program applied for, SBA requires the borrower to have
invested between 25 to 50 percent of the amount requested. The SBA will not
underwrite 100% of the venture. Hence, a borrower seeking a $100,000 loan
should have already invested about $25,000 to $50,000 in the business.
2. A
strong business plan.
Like banks and other financial institutions, SBA requires the submission of a
business plan. Through the plan, the SBA wants to see that the entrepreneur
possesses a clear understanding of the business they're in, have taken steps to
research the market, and studied the prospects of the business. The SBA wants to
see detailed plans on how the business can make money. More importantly, they
want to know how the entrepreneur can repay the loan and whether the business
can earn enough to at least cover the monthly payments.
3. A
good personal credit rating.
The credit history serves as a person's gauge for credit worthiness. The
borrower's track record in paying their bills will form an important component
in the loan application process. The SBA partner banks, which provide the money,
usually conducts a credit examination of the borrower then submits the results
to SBA. Since SBA requires that the borrower personally guarantee the loan, he
or she must show a history of honoring and repaying debts on time. Bankruptcies
and poor credit history may lead to difficulty in availing SBA loans.
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