A small business administration loan or SBA loan is a loan offered by banks and various lenders in the US. These loans are easily accessible for small business owners, especially those looking to start up a new business and they need the financial backing that an extra sum of cash would provide.
The small business administration loan is easier to access than a regular business loan because it comes with a government guarantee. This is a plan by the government to encourage new businesses and assist current businesses expand and grow.
The advantage to this is that these are often available with longer repayment periods and those with poor credit scores are still able to qualify, growing their business to the next level.
The loan guarantee program is the ideal opportunity for small business start-ups and expansions, but as with any loan amount, being unable to repay the amount can be detrimental to your business.
Many business owners choose the small business administration loan because they know the chances of them being accepted is high. It's difficult to start a new business in the current economic market, so that additional boost of cash can be used to purchase stock, necessary business machinery and tools and give the business the cash flow it needs.
The problem comes in that many business owners in a new business don't understand how difficult the market is right now. They will use the cash they receive to design the perfect website, get their office up and running and produce quality marketing material. But if the customers don't come flooding through the door, they do not receive the cash they need to repay the loan in a timely manner.
Before applying for any financing, whether you choose the government guarantee program or not, you must be sure that you will be able to make timely payments. The last thing you want to do is dig yourself deep in debt, before your business has a chance to grow.
Every business owner should put a business plan in place to not only help them run their business, but also assist them in achieving their goals. For those who choose to take out a small business administration loan, their business plan can ensure they stay on track and will also ensure they are able to make the timely payments to reduce financial difficulty before their business has a chance to really take off.
Working on a projected income and knowing what you can expect in sales turnover each month is another way to know whether taking out a loan is the right choice for your business.
If you have struggled with finances in the past and your credit score isn't stellar, then you need to take special care. As you will probably be awarded a small business administration loan with a poor credit history, you need to have every step planned to ensure your business isn't too deep in debt before you begin.
Remember that with this type of financing, you are often able to take the loan over a longer period, but with every month you owe on the loan, you have interest to pay. Paying late or not paying at all will incur penalties and leave your business in serious financial distress.
Before applying for a small business administration loan, take the time to work out your monthly expenditure and your expected monthly income. Ensure you have enough to pay your mortgage or rent, your basic costs and then take the financing repayments into consideration. If you strongly believe your income will cover everything and still offer you a monthly salary, then this is the right choice for you.