How to Secure Your Small Business Loan

Financing a small business requires a lot of consideration. Many small business owners choose small business loans (SBA) because these secured loans have longer repayment schedules, and the process to obtain a SBA loan is typically quicker than obtaining any other line of credit. However, there are high fees involved. You also need to have clean business credit report need to use collateral as a guarantee, typically your property.

What Is an SBA Loan?

Small business loans are government-sponsored loans for financing a small business. There are varied options that cover different business needs. Depending on your business qualifications you may apply for any of the following SBA programs:

a) 7(a) Loan Guaranty Program

If your business handles exports abroad or operates in rural areas, then you are eligible to apply for the 7(a) Loan Program, which provides financial assistance to small business with special requirements.

b) Microloan Program

The Microloan Program is provided for working capital, the purchase of machinery/equipment, the purchase of furniture or the purchase of inventory/supplies to the maximum amount of $50,000. If you are an eligible borrower, you can take a Microloan from intermediary nonprofit community-based organizations that are specially designated by the SBA and vary per state. You can find more information about your local SBA District Office here .

c) CDC/504 Loan Program

The CDC/504 loan is provided for the purchase of land, building, long-term machinery and equipment as well as to assist you in making long-term improvements in your business, including the construction of new facilities, utilities, renovations, etc. If you are an eligible borrower, you can take a CDC/504 loan by a Certified Development Company (CDC) that works closely with SBA and private sector lenders to ensure private financing to small businesses.

How to Secure an SBA Loan

In times of economic uncertainty, securing a small business loan can be an off-putting task. Although your small business needs a loan to grow its cash and expand its operations, lenders will be strict when investigating the viability of your business. Lenders will approve your loan only if they have confidence in your business and feel that it can successfully finance its expenses. If your business is profitable, it means that you are a viable borrower, and you can meet your loan obligations in due time. Additionally, after passing the credit check, you should provide lenders with a tangible guarantee, meaning some form of collateral that can be used as a second source of loan repayment.

Typically, the Small Business Administration requires as collateral land, personal property with (or without) equity or vehicles to secure that the SBA loan will be repaid; otherwise the collateral will be forfeited. However, collateral may also be your business inventory, accounts receivable, cash savings, deposits or equipment.

Personal property is widely considered as very good collateral, especially after the real estate bubble. Even if you don't have equity on your property, lenders will accept your home as viable collateral, better than vacant land. Similarly, cash is always well-accepted from lenders as collateral because SBA is a low-risk loan for banks. Therefore, you can get a low interest rate for this secured loan if you put your financial accounts as collateral. Of course, if you default on your debt, you risk losing all your savings.

In order to structure a loan that is beneficial to your small business, you need to be realistic about what you use as collateral for the lenders. You should thoroughly consider the risks of defaulting on your SBA loan because this can have serious consequences for your business and your life in general.

Sources:

http://www.sba.gov/category/navigation-structure/loans-grants/small-business-loans/sba-loan-programs

http://www.ehow.com/how_6793362_secure-small-business-loan.html

http://www.inc.com/guides/201101/5-tips-using-collateral-to-secure-a-small-business-loan.html

http://blog.jian.com/how-to-secure-a-small-business-loan-from-a-bank/