If you are looking for funding for your new business, you may have considered a U.S. Small Business Administration startup loan. There are many funding options to choose from, so you want to make sure that you do your research to find the option that works best for your business. Here are some tips, guidelines and things to consider in your research for an SBA startup loan.
Determining how much money you need to start your business can take time. It will depend on your business model and what industry your business is in. Here are some things to consider so you can plan for how much startup financing you might need.
One of your first expenses will likely entail creating a legal structure for your business, and you may also need to pay to file articles of incorporation with your state. Even if you donâ€™t plan on incorporating your business, you may require federal or state licensing and permits, which arenâ€™t free, either.
Whether you need an entire store to set up shop or a single office, youâ€™ll need to add the cost of renting or buying space to operate your business. If possible, consider starting the business from your home to reduce your overhead in the beginning, just make sure youâ€™re following any community or neighborhood rules. You can read more about how to run a business from home without breaking any rules on LendingTree. MagnifyMoney is a subsidiary of LendingTree.
Every business needs startup equipment, even if youâ€™re a one-person operation. Needs vary by industry and may include vehicles, computers, machines or furniture. The costs of inventory are all across the board, too. If youâ€™re opening a business in retail, wholesale or distribution, youâ€™ll need to calculate inventory costs upfront.
You wonâ€™t get many customers if no one knows you exist, so itâ€™s pretty important to add marketing and advertising costs to your business budget. You may want signs, banners or business cards to promote your business, along with a well-designed website. With more than half of small businesses reportedly operating without a website, having one will give you an instant advantage.
For other startup costs, you could use the SBAâ€™s startup costs worksheet to provide a better understanding of how much capital youâ€™ll need for your startup financing.
Not only does the SBA offer tools to help you plan your startup costs, it also offers training programs and education to grow your business, too. As you navigate the seemingly endless list of expenses youâ€™ll need to cover to get your business off the ground, the SBA can help.
Jessica Mayle, district public affairs specialist at the SBAâ€™s Illinois office, said, â€śBefore seeking a loan, a small business owner should make sure he or she has a solid business plan, financial projections, collateral and other necessary materials. Working with a counselor from a Small Business Development Center or SCORE can help increase your chances of success.â€ť
Though definite requirements vary by type of small business loan, here are a few general guidelines your business must meet:
Additionally, if you donâ€™t already have a solid business plan in place, now is the time to create one. A detailed business plan that includes financial forecasts and statements is a requirement for any startup financing, including SBA loans.
SBA loans can be helpful for any business looking for startup financing. Through its partnerships with lending institutions like banks, microlenders and community organizations, the SBA can connect you with its best lenders for your small business.
Depending on what you want to use your SBA loan for and how much startup financing you need, there are a few options to consider.
As the most common type of SBA loan, these go up to $5 million and are used for almost any business purpose. SBA 7(a) loans add anywhere from 2.2 to 4.75% to a lenderâ€™s base rate and loans can be repaid from 10 to 25 years, depending on the purpose of the loan.
Two popular loans frequently accessed as part of the 7(a) loan program are the SBA Express Loan and the SBA Advantage Loan. With the Express Loan Program, your borrowing is capped at $350,000 but processing time is expedited for a quicker approval.
Advantage Loans are geared toward businesses that might not qualify for the standard 7(a) loan because of low revenues or other reasons. Though it does offer the same expedited service, the Advantage Loan limits lending to $250,000.
With a specific focus on small businesses looking to buy or build commercial real estate, the SBA 504 loans provide up to $5.5 million in financing. The SBA also facilitates the partnering of banks with a community development corporation (CDC) to cover the cost of funding the loan.
This loan cannot be used to repay existing debt.
If your business needs help with recurring payments or an unexpected expense, the CAPLines Program has five line-of-credit products designed for different goals and provides up to $5 million in financing.
The repayment term can be from five to 10 years.
Not sure which of the five programs are right for you?
Hereâ€™s a quick overview:
For global-business seekers, the SBA Export Loan provides funding to expand exports, participate in international transactions and enter new foreign markets. Repayment terms extend up to 25 years.
If youâ€™re seeking a quicker funding opportunity, the SBA Export Express Loan is another option, though youâ€™re limited to $500,000 in financing. Thereâ€™s also the SBA Export Working Capital Loan that allows up to $5 million to help cover the costs associated with entering a new export marketing or expand in an existing one.
While most loans are geared toward for-profit businesses, SBA Microloans are specifically designed to provide loans to nonprofit intermediaries who then lend amounts of less than $50,000 to for-profit small businesses and nonprofit child care centers. Youâ€™ll have up to six years to repay a microloan .
When natural or human-made disasters strike, small businesses can suffer immensely. The SBA Disaster Loans offer financial help for businesses to recover from a declared disaster.
Depending on the type of emergency, there are three types of loans to choose from:
Borrowing through this program gives you access to as much as $2 million, with a repayment period of up to 30 years. The interest rates of 4 to 8 percent are quite reasonable, too.
Used for repairs/replacement of:
Determining how much funding you need and what type of SBA loan you should apply for is a tedious and time-consuming task.
Your local SBA District Office can help with personalized one-on-one guidance to calculate your startup financing needs and to select the right loan program. Finding the right SBA loan will push you through the difficult first few years to grow into a well-established and successful small business.
5.99% To 35.99% APR
6.99% To 14.99% APR
6.99% To 24.99% APR
3.34% To 16.99% APR
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