The desire to own a business is alive and well in the United States. In September of 2021, 1.4 million Americans filed applications to start their own enterprises. While this is a promising sign for the economy, the reality is that not all of these businesses will survive. Starting a new company requires sufficient capital.
Cash-strapped entrepreneurs can secure funding from a Small Business Administration (SBA) loan to increase the likelihood that their new business will succeed. Here are three tips to follow when starting an SBA loan for your new business.
How to Get an SBA Loan for New Businesses
- Calculate Business Costs to Determine SBA Funding Needs
Each small business has its own unique expenses. The type of business—whether it’s brick and mortar, online, or service-based—will have different kinds of expenses. A restaurant and bar, for example, will have different expenses than an online retail store.
Identify your business’s expenses and estimate how much they will cost before starting the SBA loan process. This will give you a better understanding of how much capital you will need and when you will need it.
Once you’ve identified your expenses and approximate costs, record them in a spreadsheet and group them into two sections—one-time and monthly expenses.
One-time expenses are costs that are made only once to start the business. They include purchases like logo-design services and heavy equipment. Monthly expenses, on the other hand, are recurring and include rent, utilities, and employee salaries.
Add up the monthly and one-time expenses to calculate your business’s anticipated costs for the year. Then, create a formal report of your expected costs.
Lenders will review your expense report and compare it to your projected revenue to determine your business’s potential profitability.
- Prepare Business Documents & Down Payment for SBA Loan
Preparation is not only key to launching a successful business, but it is also crucial to securing small business funding from the SBA.
Lenders will have more confidence lending to your small business if you have prepared a sound business plan. Your business plan serves as a road map for structuring, managing, and growing your business.
In addition to your business plan, it is prudent to prepare your expense sheet and financial projections before applying for a new small business loan. These documents will demonstrate to the lender that your business has the vision to achieve its goals and succeed.
Lastly, you should be prepared to put down money or collateral for a small business loan. The SBA requires a down payment for its popular loan programs. The dollar amount varies by loan type and the borrower’s qualifications.
Most companies are only required by the SBA to pay 10% of the total project costs upfront, but this figure can be reduced to as little as 5%.
- Research & Select the Right SBA Loan
Now that you have prepared your business financials and know about the required down payment, it’s time to research and choose the right SBA loan for your company.
The SBA backs a variety of small business loan programs. Each loan program has its own eligibility requirements. Picking the right SBA loan for your small enterprise will stack the odds of success in your favor.
The two best loan options for newly-formed small businesses are the SBA Community Advantage and Ohio Micro-Loan programs. These loans cater to company owners who have been denied traditional bank financing and have weak credit histories.
Both loan programs are designed specifically for startups and are administered by mission-focused, community lenders like Growth Capital Corp. Visit the SBA’s website to learn more and explore all of their funding programs.
Get Started With A New Small Business Loan Application
Starting the SBA loan application for your new small business is no walk in the park. If you’d like additional help with the application process or want to compare the various SBA loan options, contact the experts at Growth Capital today.