A Step-by-Step Guide on How to Get an SBA Loan

Looking to get an SBA loan?

Check out this step-by-step guide on how to get an SBA loan.

6 Steps on How to Get an SBA Loan:

1. Understand why you need the money.

2. Check your eligibility.

3. Choose the right SBA loan program.

4. Find a lender.

5. Prepare your paperwork.

6. Fill out the application form.

A whopping 29% of small businesses fail because of a lack of enough capital.

Are you planning to set up a business but don’t have enough funds? Do you want to add more cash to your existing business? Worry not; this guide will help you know how to get an SBA loan with ease.

SBA loans are government-backed. They have favorable interest rates, flexible repayment terms, and they are easy to get. Millions of entrepreneurs have benefited from the loan, and you can get it too if you are eligible, and you understand the basics. 

Here is the step by step guide to help you acquire it:

Step 1: Understand Why You Need the Money

The first important step to get an SBA loan is to know why you need the money. Before you apply, you should ask yourself if the loan is necessary or you can do without it.

Some legit reasons as to why you need the loan might include:

• To get new pieces of equipment

• To acquire new land for business expansion

• To refinance an old debt with a high interest rate

• To hire new employees

• To add new stock

You might also take a loan to buy a business or finance your startup. Don’t take a loan to finance your home projects. 

The lenders will need to know your loan's purpose and might investigate further to know if that’s how you will use the loan. So plan well, and determine the exact amount to borrow.

Step 2: Check Your Eligibility

Check if you qualify for the loan. Though the SBA loans are meant for entrepreneurs, not all businesses qualify. Here are the standard requirements for most SBA loans:

• Excellent credit score- some lenders check your personal or business credit score. You should ensure that it’s excellent to secure the loan

• A business plan- you should create a valid business plan to enhance transparency

• Business documents- they include your tax payments, balance sheets, profit and loss records, etc

• Size requirements- your firm should meet the SBA requirements of a small business

• Collateral- some lenders may require you to provide collateral if the loan is risky, or you are asking for a larger amount

Some lenders may require proof that you tried to apply for loans from other conventional banks and failed. Confirm that you have every important document to improve your chances of approval.

Step 3: Choose the Right SBA Loan Program

There are three main types of SBA loans. They include SBA 7(a) loans, 504 (a) loans, and the Microloan SBA loans.

SBA 7(A) Loans

They are the most popular. The common type of these loans is the community advantage loans, which are designed for low-income people. The average loan amount for the SBA 7(a) loans ranges from $250,000 to $5 million.

504 (A) Loans

They are great for entrepreneurs who wish to buy new business equipment, renovate buildings, or buy land pieces. The maximum repayment period is 10 years, and the maximum borrowing amount is $5 million.

Microloan SBA Loans

Microloans are smaller, with a maximum borrowing amount of $50,000. The interest rate is low too.

You can only choose the right type of loan when you understand the available options. What does the lender offer? Does the loan meet your needs? As you choose, you should consider the interest rates, the loan amount, and the repayment period too.

Step 4: Find a Lender

Many lenders offer SBA loans. A large number of lenders may easily overwhelm you if you are not keen. That’s why financial experts advise borrowers to take their time when looking for a lender, even when the financial need is quite pressing.

You can either search on your own or find a referral service. The referral services offer a list of the available lenders and compare the features to help borrowers choose the best. However, the referral firms might charge a small fee, which you should always be aware of before committing.

Here are the important considerations to observe when finding a great lender for your SBA loan:

• Check if the lender offers the exact SBA loan program you need

• Check the minimum amount that the lender offers

• Look at the eligibility requirements and ensure that you meet them

• Consider the interest rates- if possible, compare the rates offered by different lenders to get the most affordable

• Ask about the down payments- some lenders require the borrowers to pay down payments before applying for the loan

• Check the disbursement period

Lastly, consider customer service. The best lender should have a great customer care team to provide the best customer service. You might check the review and references too to know the firm's reputation and customer service.

Step 5: Prepare Your Paperwork

Assuming you now have a specific lender in mind, you should prepare the right paperwork required for the application. Your lender should give you a list of all the things you should have before you apply.

Here are some of the vital documents that you must provide to get an SBA loan quickly:

• Your business licenses and permits

• Your business plan- it should show how you will use the loan

• Your personal documents such as the national identification number and so on

• Your current balance sheet as well as the P&L accounts

• Your tax returns forms

• Proof of business ownership

Do not forge documents. Lenders conduct strict scrutiny to determine the truth in the documents you provide. 

Step 6: Fill Out the Application Form

Having provided the documents and met the other eligibility requirements, you can now fill out the application form. The form should indicate all the relevant information regarding SBA loans. For instance, it should state the interest, the amount, repayments, and other terms.

Read the information carefully to avoid making mistakes. If possible, find someone to help you translate the information for easier understanding. Here are a few rules to observe when applying:

• Avoid spelling or grammar mistakes

• Provide the correct information

• Don’t sign/ fill in any information if you don’t agree to the lending terms and conditions

• Submit the applications at the right time

You can either submit your application online or offline according to your lender's preferences.

Seek Professional Guidance on How to Get an SBA Loan

The SBA loan application may be overwhelming to an entrepreneur who has never applied for another loan before. If this is your case, then you should seek professional help.

A great lender or business broker will help you know how to get an SBA loan quickly and guide you through the business acquisition journey.

BizNexus is your resource for connecting with opportunities and the professionals who can help you get your acquisition financed. The platform helps entrepreneurs acquire new businesses, buy a new franchise, and connect with the right professionals to help sell their businesses. 

Intermediaries on our platform routinely advise entrepreneurs on their available options to help them make the best decisions. If you plan to buy or sell a business, get started by logging into your free BizNexus account to get matched with the right professionals to help.

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The Top 5 Loans to Finance Your Business Acquisition

Finance your business acquisition

Here are top 5 loans to learn about

Looking for the right type of loan to finance your business acquisition? There are a lot of options. Read on to learn a few of the best.

Finance your business acquisition

A record $2.5 trillion in mergers was announced in the first half of 2018.

If you are looking to acquire a business, there may not be a better time.

The acquisition gives you access to experts, capital, and market power that can grow your enterprise and build your brand. Yet you may be wondering how you can make it happen.

There are a number of ways to finance your business acquisition. Here are five of the best loan options.

1. Small Business Administration Loans

Small Business Administration (SBA) loans are known for their competitive interest rates and long repayment plans. The SBA does not loan money directly. Instead, they partner with select banks and lenders to secure loans to business owners.

It is easier to get approved for SBA financing if you are an established business rather than a startup. This is because the lender can use your existing repayment history to prove your credibility.

It may take longer to qualify for an SBA loan than other loans. In addition, you will likely be required to provide a down-payment of at least 10%.

Interest rates on SBA loans vary depending upon the current U.S. prime rate. A repayment schedule will vary depending upon the type of business you are purchasing. It is shorter for working capital and longer for real estate.

2. Startup Loans

If you are a new business owner hoping to finance your business acquisition, a startup loan may be best for you. 

These loans may be easier for new business owners to qualify for, but you will still need a solid business plan and a good credit history. One downside of startup loans is that they can restrict cash flow. And don't forget that you could be putting your own credit reputation at risk if the business doesn't work out.

3. Rollover for Business Startups

Rollovers for Business Startups (ROBS) allow you to access the money from your retirement to start a business without paying taxes or early withdrawal fees. The funds can be used for acquisition, working capital, or as a down-payment for other forms of financing.

A ROBS is not a loan, so there will be no debt to repay. It is also quicker to acquire than a typical business loan.

A ROBS usually requires a setup fee and a small monthly management fee. The biggest obvious drawback is that you will risk your retirement funds.

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4. Home Equity Line of Credit

A Home Equity Line of Credit (HELOC) is a line of credit secured by the equity you have in your house or apartment. You will likely need at least 20% equity in your home.

A HELOC can be a more inexpensive way to access your credit than other methods because they offer interest-only payments for the first few years of repayment. The downside is that you are risking your home if your investment does not work out.

5. Term Loans

A term loan offers a lump sum that can get repaid in fixed installments for a predetermined period of time. Generally, they are quicker to acquire than an SBA. You may, however, get held personally liable if your business stops making payments.

The Best Way to Finance Your Business Acquisition

The best loans to finance your business acquisition will depend on your experience, credit history, and type of business.

For more information on business acquisition options, read our blog today.

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THE BIZNEXUS ROUNDUP

Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.

How to Get a Loan to Buy a Business

Want to buy a business

Here is how to get a loan

Are you worried about your lack of capital? Many successful businesses started with a loan. Get a loan to buy a business with these simple steps.

Loan to buy a business

Only 80 percent of small businesses survive the first year. After that, things get even worse. Only half of the small businesses pass the five-year mark.

Are you an entrepreneur wanting to own your own business but are afraid of failing? There's a solution!

Buying an existing business is a great way to increase your chances of success. And if you're worried about getting a loan to buy a business, we have the tips for you.

Keep reading to learn more about your options for financing your new business. 

Bank Loans

If you have a great credit score and can show a history of strong financials for the business you want to purchase, you'll probably qualify for a bank loan. Many banks offer their own loans and even small business administration (SBA) loans that are backed by the government.

If the company has a good history and a positive outlook, you may qualify for a loan with a low interest rate. However, bank loans aren't always the best choice. They can be time-consuming and often require you to make a deposit as collateral. 

Credit Union Loans

Credit unions are not for profit and are owned and control by their members. This means they often have lower interest rates and fees as well as more flexible lending requirements.

They tend to have a more personal approach and aren't bound by a set of strict guidelines. 

Online Business Loans

Prospective business owners can choose from many different options when it comes to online business loans. Online lenders offer a fast and convenient application process and tend to have higher approval rates than traditional lenders.

Be sure to compare rates and terms carefully to avoid getting stuck with a high interest rate.

Online Personal Loans

Personal loans can also be used to finance business ventures but it's important to shop around. While going this route can get you funding quickly, not all personal loan lenders will let you use the funds for business purposes. 

Seller Financing

If you don't want to get a loan from a third party, you may be able to make arrangements with the seller of the business. They will act as a lender and you can make payments to them for their business in installments.

Sometimes the seller will even finance part of the sale price. With this sort of arrangement, you can pay as you go. This can make managing your budget and cash flow much easier. 

Looking for a Loan to Buy a Business?

Starting your own business can be one of the most rewarding yet scary ventures you'll ever make. You can go into the process with more confidence and less risk by buying an existing business.

If you looking for a loan to buy a business, we are here for you. We help entrepreneurs buy existing businesses.

Click here to learn more about funding your new business. 

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BUSINESS ACQUISITION

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THE BIZNEXUS ROUNDUP

Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.

5 Tips on Financing the Purchase of an Existing Business

Purchasing an Existing Business?

Here are 5 tips to help you finance the acquisition

There are a number of methods you can use when financing the purchase of an existing business. Here are a few that we suggest you try.

Financing the purchase of an existing business

More businesses are being sold than ever before. In fact, a record number of small business owners are selling their companies. According to this data, the number of business listings increased by 8 percent from the prior quarter. 

In a world awash with excess capital and with demand for reliable cash flow returns on the rise, prices for existing businesses & assets have been on the rise.

Popular acquisition targets typically have reliable, recurring revenue and cash flow, with an established brand and loyal customer base. With prices continuing to trend up, you’ll need to have your ducks in a row before you decide on the best way to finance an acquisition.

Read on for a guide to financing the purchase of an existing business. Explore 5 tips for purchasing a business that is highly effective.

1. Apply for an SBA Loan

The United States Small Business Administration (SBA) is a great resource for entrepreneurs. They work with lenders across the nation to guarantee loans against default.

Lenders are willing to take on more financial risk due to the government’s backing. SBA loans offer more favorable terms and rates than conventional funding sources.

There are a number of different loan programs to apply for. The most popular are the 7(a), 504, and microloan programs.

2. Consider Seller Financing

In some deals, the seller is willing to finance a portion or all of the deal. The benefit to the seller is that they can turn a greater profit.

There are also a number of advantages to the buyer. Perhaps most important is the ease of access to capital.

Also, another benefit is the speed of the financing deal. Seller financing is proven to be a faster alternative than conventional loans.

3. Make a Sizable Down Payment

A significant down payment is an effective method for reducing company risk. Like purchasing any asset, a down payment improves your financial position in the company. It reduces the amount of interest that you will pay over the life of the loan.

For business acquisitions, a large down payment is required. While mortgages require 20 percent, a business purchase usually takes even more.

The more cash you bring to the table the better. Many small business owners use personal funds for a down payment. For larger acquisitions, the down payment may require multiple investors pooling their resources together.

4. Angel Investors

There are increasingly common scenarios today where wealthy investors, feeling flush after 10 years of public market gains and looking to diversify into something reliable & attractive going forward, are interested in financing entrepreneurship through acquisition (ETA) as a viable investment vehicle. If you can sell those types of investors on your personal “why” story and your credentials to run a business, this can be a great option if you can get access.

5. Getting Creative

To finalize a business purchase, sometimes you have to get creative. These cases may call for a leveraged buyout or assumption of debt.

In a leveraged buyout, you trade-off existing assets in lieu of capital. An assumption of debt means that you are acquiring the company’s liabilities as well as their assets.

A Recap of Financing the Purchase of an Existing Business

Starting a business from scratch is hard work and risky. Many entrepreneurs choose to purchase an existing business instead and fund their entrepreneurial efforts from the existing cash flows of an operational business.

This option allows an entrepreneur to acquire a proven business model. Entrepreneurs turn to methods like SBA or seller financing to close a deal. If you want to learn more about financing the purchase of an existing business, Login to get matched.

BizNexus -Learn More From Our YouTube Playlist:

BUSINESS ACQUISITION

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THE BIZNEXUS ROUNDUP

Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.

Why 2019 might be the best time in history to buy a new business

Buy A new business

Here is Why 2019 Might Be The Best Time

As we mentioned elsewhere, 2019 looks like it might shake out to be the best year in a decade to buy a business in the United States. There are a few big reasons for this:

• Loans are accessible and still historically dirt-cheap.

• First-time entrepreneurs have access to up to $5 million in SBA loans from the government to help finance a new business acquisition.

• With small business owners set to skyrocket over the next 10 years, there’s rapidly increasing interest out there for buying and established, viable business.

• New technology solutions continue to offer increasingly efficient ways to connect buyers and sellers of businesses and to identify the right professional for you to do so.

So if you’re considering a jump into entrepreneurship, -buying an existing small business is absolutely an option you should consider. In his article for business.com, Looking Ahead: Buying a Business in 2017, Bruce Hakutizwi states:

Depending on your business strategy, industry, location, and other factors, there are more reliable and willing funding opportunities available to entrepreneurs right now than ever before. Between low-interest traditional business loans, government grants and loans, and a striking volume of venture capital available from individual angel investors, large corporations, and established VC funds, it’s easier and faster than ever before to fund a promising new startup or the expansion of an existing business.

As opposed to the relative risk of a brand new startup, obtaining funds to purchase an already established and successful business is even easier. This is doubly true if you’re purchasing another business that naturally extends or expands your own existing company or expertise since you can likely prove to the lender you’re up to the task of making the acquisition profitable. -Bruce Hakutizwi.

Buying a new business can be an exciting, rewarding, and potentially life-changing experience for you and your family. Do your research before you choose any professional to help you with the process, and make sure you’re clear on expectations and compensation from the outset. And as always, we recommend you check the BizNexus Marketplace to help vet financial services professionals, and for any helpful reviews, ratings, or relevant content to help guide your way.

A few useful links if you’d like to dig deeper on the topic:

1. Buying Existing Businesses. -SBA

2. How to Buy an Existing Website: A Step-by-Step Guide. -Will Lipovsky

3. How to Find a Business Broker. -Entrepreneur

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Business Acquisition

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The BizNexus Roundup

Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.