If you are a new small business you will need a different type of financing than an established company interested in having additional money available for expansion.
Start-up companies can benefit from Small Business Administration (SBA) loans that are more forgiving when it comes to qualifications. Loans like the SBA 504 and 7(a) loans require less money down and have attractive repayment terms, including low, fixed-interest rates.
If you only need a small amount of cash (up to $50,000), consider a microloan.
Business owners who already work with a bank and have established good credit can apply for a traditional loan and benefit from high loan amounts and low interest rates.
If you need equipment or are interested in building, research equipment or construction loans.
2. Find out if you qualify for a small business loan
When determining the likelihood of getting approved for a small business loan, factors to consider are your credit score, how long you’ve been in business, if you make enough money, and if you can afford the payments.
3. Put together a solid business plan
Whenever you meet with a potential lender—a bank or other financial institution—they are not going to be willing to take a risk on your small business if you do not present a great business plan. Things to include in your plan are market and competitive analysis, a marketing plan, sales strategy, etc.
4. Consult with a Certified Development Company (CDC)
Make an appointment with a CDC to learn more about one of the best loan options available, the SBA 504 loan, which has three sources of funding. A commercial, third-party lender holds the first mortgage position and typically offers up to 50 percent of the project cost. The SBA 504 loan-backed portion from a CDC will act as a second mortgage, financing up to 40 percent of eligible project costs. The remaining 10 percent (an equity investment) will be the small business owner’s down payment.
The loan has benefits like low interest rates and 25-year fixed terms.
SBA 504 loans can be used for large investments such as purchasing equipment or machinery; purchasing existing buildings; purchasing land and land improvements (street grading, utilities, parking lots); building new facilities; renovating, remodeling, or converting existing facilities; or refinancing existing debt that’s connected with an expansion of your business.
5. Gather documents and apply
Once you have done all of your research, get together everything you need for the application (bank statements, credit scores, tax returns, and any other financial or legal documents), and meet with your lender of choice.
If you feel you qualify for an SBA 504 loan, start by finding a Certified Development Company (CDC) in your area and make an appointment for a consultation. Following these important steps will ensure you are on track for small business loan approval.
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