The economic recession has meant a tough time for most business people. They have suffered huge losses and have reduced their business to nothing more than a paycheck. In order to keep their businesses running, they resort to every possible means and turn to business loans. However, the application process for business loans is very complex and most business owners cannot prepare themselves adequately to meet the complicated requirements of a loan application.
To cater to the needs of business people, the US government introduced many federal loans such as Small Business Administration (SBAC) and Enterprise Opportunity Grants. The Small Business Administration offers various forms of financial assistance and aids to small businesses, such as general loans, small business investment loans, start-up loans, partnership loans, and disaster loans. The Small Business Administration also offers various loans schemes for women owned, minority, and Small Business Development (SBDC) programs. These schemes are designed to increase access to finance and help small businesses. The objectives of these schemes are mainly to help business owners create more jobs, increase investment in technology, promote local employment and reduce business consolidation costs.
Another solution available for small businesses is the Small Business Administration’s (SBA’s) Working Capital Advancement Program (WAP). This program provides business owners with working capital management assistance by providing up to $75000. Most small businesses are able to tap into this fund, but there are certain requirements that have to be met before availing of the fund. These are detailed in the WAP application.
One of the SBA’s loan products is the Business Development Center (BD Center) which provides working capital and debt consolidation loans to qualified applicants. The main purpose of the BDC is to provide a reliable cash advance facility to small business owners to get their business off the ground. This loan facility can be used for any business purpose as long as it does not affect the credit rating of the borrower. In case, if the borrower wants to avail of this loan for growing business purposes, he/she has to submit a business plan to the SBA. The business plan should include a detailed cash flow forecast and a business plan analysis.
The U.S. federal Small Business Administration offers two loan programs for small businesses. The First Program offers a low interest rate as well as a three to twelve month repayment period for the working capital or debt consolidation loans. The second program is known as the Federal Start-Up Loan Program, which offers a start-up credit or a non-recourse loan to small businesses.
As with most business loan programs, there is a risk involved when it comes to applying for these funds. Since the Small Business Administration only guarantees the interest rate, the lender’s risk lies on the lender’s ability to recover the invested funds. Lenders usually charge high interest rates because of the risk factor involved. Most of the business loan programs offered by the SBA are backed by collateral such as real estate property, personal property or corporate business assets. In most cases, the business owners need to pledge the collateral as a form of protection.
It is important that you discuss with your bankers and lenders whether you are eligible for these loans or not. Most importantly, you need to confirm whether you have a ready supply of collateral to provide as security for the loan amount. Most of the banks and financial institutions offer free credit counseling and a free online business planning session to explain to you about the various loan programs and the interest rate and repayment options available. The lenders also offer free online quotes for these loans so that you can compare them with other lenders.
If you are interested in getting a business loan, try to boost your credit score. It is a good idea to get your credit score as high as possible so that you will be able to get competitive rates from the lenders. However, the financial history of the borrower is not the only factor that lenders look at when approving the business loan. Lenders also consider your personal and business characteristics such as your credit score, business plan and cash flow before approving the business loan. To get the best rates, it is advisable to get quotes from at least three lenders and compare them to find the lender who is offering you the best deal.