by Jerry Bazata
As technology continues to evolve in our industry, it seems like we need to constantly buy new equipment, purchase more inventory, and find capital infusion.
Small Business Administration (SBA) loans are a good source but I have received numerous phone calls asking for clarification on the confusion surrounding them. Understanding how an SBA loan works and how to successfully get one for your business is a matter of separating the facts from the myths.
Fact #1- All banks do not evaluate an SBA loan request with the same viewpoint. Banks are subject to the same SBA Guidelines, the rules are subject to different interpretations with respect to analyzing a particular loan request. While one bank may be willing to be conservative, another will take a more optimistic evaluation of the facts and your business’ future success.
Fact #2- All banks do not offer the exact same types of financing for SBA loans. The cost of a loan and how it’s structured will vary substantially. Interest rates on SBA loans are based on the prime rate plus a margin. Although there are some basic guidelines provided by the SBA, the bank is ultimately responsible for the cost of the loan, collateral structure, terms and conditions of the loan.
Fact#3- It does not take long to get through the red tape of SBA loans. Many banks have “delegated authority” to directly approve a SBA loan. They can provide a full written loan proposal within 48 hours, and some provide a loan commitment within a week of receiving a full loan package. Closing the loan depends on the specific requirements of each transaction, but takes no longer than closing a conventional commercial loan. If the loan requires an appraisal, this may add several weeks to the process.
Fact #4- SBA loans do not require a lot of collateral. A bank will consider collateral when reviewing a loan application, but they also look at several other factors. Your character, your creditworthiness with respect to you history of paying your debts, your management capabilities, and your equity contribution is just as important as having collateral. Ultimately, your ability to repay the loan from your business’s cash flow is the most important consideration.
Fact #5- SBA loans are not from the Federal Government or loans of last resort. The SBA is an agency of the executive branch of the Federal Government. It establishes guidelines that lenders must follow when giving SBA loans and the SBA backs each loan with a guarantee. The actual funds for each loan will come directly from the financial institution. The SBA should be one of the first places a small business owner goes when seeking a business loan (unless you have a friend or relative willing to invest in your business). The express purpose of the SBA is to help Americans start, build, and grow businesses in order to promote a healthy economy.
Is an SBA Loan The Best Type for You?
You need to assess your business’s current financial situation and growth potential. Would it benefit your company if you refinanced old debt? Could you increase business with more equipment? Would new branding bring in more clients? Would a combination of SBA financing with a traditional form of commercial financing help your business grow?
It is critical to have the answers to these questions to know not only when to seek financing, but how much you will need, and what is available. This is where a financial adviser can be invaluable to you.
Knowing and understanding your options will help you determine the best decisions for your business, and keep it flourishing!
Jerry Bazata – Money Answer Man
Jerry Bazata has over 25 years of experience as a professional mobile entertainer. He is the owner of DJ Jaz Music and Entertainment, and J & J Marketing and Entertainment, a leading consultant to the event planning and music industries. Jerry is also a Vice President in the Global Commercial Bank-Business Banking Group of a global financial institution.
He has been a featured speaker numerous times at the International Bar & Restaurant Show in Las Vegas and the International DJ Expo in Atlantic City. Jerry’s charismatic, humorous and down-to-earth style allows attendees to get educated in an entertaining manner. He provides guidance and inspiration to help DJ business owners achieve their financial goals.
Additionally, Jerry has authored countless articles about financial and marketing success strategies that have appeared in a DJ Times Magazine and financial publications. His insights and forecasting abilities are second to none.
Jerry is a graduate of Sacred Heart University in Connecticut. He holds Bachelor of Administration Banking and Finance, and Bachelor of Administration Marketing degrees as well as an American Institute of Banking Sales Management and Theory Degree.
You can visit Jerry’s website, Maine Disc Jockey or email him at [email protected].
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