Making the decision to start a new business or expand your current business operations can be exciting and, unfortunately, sometimes quite tedious. Handling both the organizational and financial aspects can prove to be draining. Fortunately, SBA microloans have the latter issue covered. These small loans can be utilized for a diverse array of business purposes, among them as startup capital or financial backing for expansion pursuits. These loans differ from others in several respects, one of the predominant ones being that they are issued by the U.S. government.
The Small Business Administration does not issue these loans directly to borrowers. Rather, they funnel money to local non-profit lenders who either approve or deny hopeful borrowers. Those seeking to obtain a microloan need to be ineligible for traditional loans. This loan may not be granted to a business which can otherwise borrow money. Applications for such a loan need to be submitted to the appropriate local entity for review. Documentation commonly required during business loan applications is essential for approval of such loans. Among this documentation should be a business plan, financial statements, etc. etc.
Documentation requirements are not the only way in which SBA mircoloans are similar to commercial loans. Borrowers also need to provide their respective lender with some collateral in the event that loan repayment obligations are not fulfilled. Collateral tends to come in the form of business assets such as machinery or other equipment. Some lenders may agree to issue a loan without collateral, however, the applicant will need to have a near-perfect credit history. Otherwise, chances for approval are slim. These loans, unfortunately, differ in the fact that they have far reduced repayment periods. Borrowers should be prepared to clear their debt within six years. Interest rates on such loans fluctuate between eight and thirteen percent. Both interest rates and repayment timeframes are dependent on a slew of different factors ranging from the specific borrowed sum to the intended use of the money.
Applying for an SBA microloan is neither a complicated nor long-drawn process. Applicants need assemble all appropriate documentation and submit it to a local entity that processes such loan applications. There are a number of websites online that provide a listing of SBA-accredited lending institutions free of charge. Approval times for applications may vary depending on the specific policies of local microloan lenders. Some require that prospective borrowers undergo training before they are considered for the loan.