With 2009 behind us, it’s pleasing to see some indicators that
the government-backed small business loan market may be trending in the right
direction. In early January 2010, CNN Money
reported that the Small Business Administration’s flagship lending program –
7(a) Loan Program – backed 37% more loans in its latest quarter than it did during the same period in the year prior. That’s $3.8 billion
spread across 12,393 loans.
If you have struggled to get financing in the past, or are
thinking of venturing into small business loan territory for the first time,
here are some pointers.
What is a
Government-Backed Business Loan?
First, let’s dispel one myth – the government does not
(generally) directly provide business owners with loans . Instead, it provides
a guaranty to banks and lenders for the money they lend to small businesses
owners (and you’ll find information here
on what the SBA officially considers “small”). This guaranty protects the
lenders interests by promising to pay a portion (the percentage varies by the
type of loan) if the business owner defaults on the loan.
Essentially government-backed small business loans alleviate
the risk associated with lending money to business owners and entrepreneurs who
may not qualify for traditional loans – thus opening up lending opportunities
to thousands of entrepreneurs, start-ups, growing businesses, minorities, and
What Type of Loans
There are quite literally hundreds of government-backed
loans, administered by the Small Business Administration, each developed to
suit the needs of your particular business – whether you need start-up funds, export-assistance
funds, are struggling to pay
off debt, or are a veteran
seeking to start and grow your business.
For more information on some of the myths that surround
government small business finance programs, read “Grants & Loans: Break Through the Myths & Find the Right Financing for Your Needs“. It also will help you understand which loans and grants you might
be eligible for. The SBA Loans Guide
from Business.gov also provides information and direct links to information
about commonly requested SBA programs.
Is My Business
Eligible for a Loan?
While each loan has its own specific qualification criteria,
you will need to talk to your bank or lender about your eligibility. But before
you set up your first appointment with a loans officer, use this Small Business
Loans and Grants Search Tool (from Business.gov) to help you build a
picture of what government-backed financing your small business might
be eligible for based on your business profile and needs.
Your local SBA
District Office can also provide guidance and advice about loan eligibility
and application requirements. They should also be able to point you to SBA
lenders in your area.
While most banks and lenders offer SBA loans, you would be
advised to approach a bank that been through this process before and is also
either a Certified Lender or Preferred Lender.
That certification means they have a contractual relationship with the
SBA and participate in the Certified
Lender (CLP) / Preferred
Lender (PLP) programs – in other words, they have a proven track record of
processing SBA-backed loans and know what they are doing!