It is a fact that, nowadays, more SBA funds are available than it used to be till last year. This is because of the new administration and enhanced funding for SBA lending made feasible by TARP and new business laws. It is understood that SBA guarantees loan and does not make loans. Also, SBA is also not a direct lender. SBA coordinates things out with financial institutions so as to provide money to entrepreneurs via the SBA backed loans.
SBA Guarantee loans are important as it has become increasingly difficult these days to find small business loans. Banks have tightened underwriting criteria for small business loan. This happened due to the recent credit crisis and mortgage lending problems. The federal government has reduced bank’s exposure by guaranteeing repayment of at-least 90 % of the loan. This has allowed institutions like banks to loosen criteria and make larger amount of loans available to businesses.
As more loans are granted and money goes into the hands of qualified small businesses, it enables business to grow, economy to rise and increases tax revenue generation. However, it is important to qualify for SBA loan. It is also true that qualifying for SBA loan is much easier than traditional bank loans. The borrower also needs to fulfill certain criteria for this:
- It is not at all possible to get 100 percent financing. The business owner also needs to invest some of his own money. Lenders of SBA expect borrowers to participate in the financial risk.
- Though it is true that small business loans are collateralized, but then there are also some SBA loans that do not require collaterals. This depends on the size of the loan that one seeks. Loans, in general, are not declined. Only inadequate collateral is considered as an unfavorable factor.
- Sharing of documents with the lender is also vital. Both personal and business records need to be shared for SBA loans. These include bank statements, tax returns, leases and contracts, income and expenditure ledgers, profit and loss statements, and so on.
- Finally in order to secure SBA loans it is also important to sign a personal guarantee.
Some SBA lenders are lenient while others are conservative and aggressive. This is what makes SBA lenders different from one another.
This article was submitted by Rohit Arora, co-founder of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to