The Small Business Administration is an organization designed to help entrepreneurs get loans and support from financial institutions. The SBA was established in 1953 with a Congressional act that authorized the association to provide loans and counseling services to small businesses. The purpose of the SBA is to assist and stimulate small businesses by providing monetary assistance, advice, and training, and market their products.
Small Business Administration loans are specifically tailored to assist those that have less than profitable businesses. It does not make loans to medium or large sized companies. Because the Small Business Administration works with a variety of different organizations that provide a variety of services, there is a lot of flexibility in the loans that can be obtained through the program. Many times, the SBA will refer the business owner to an organization that offers this type of loan. The SBA also participates in financing many of the start up businesses that are formed each year.
Because the Small Business Administration assists and provides assistance to millions of small businesses each year, there are thousands of jobs that would not be created if it were not for the businesses that are supported by the SBA. Without these organizations, many companies would fail to exist. Entrepreneurs that are starting new companies often have limited capital to work with. The SBA is able to provide necessary funding for start up costs as well as ongoing support once the company has been established.
Most start up loans are not very competitive. As a result, a great number of people are turned away for consideration. Because of this, entrepreneurs often have to take out additional loans that meet the guidelines of the Small Business Administration. Typically, the lender that offers start up loans will require collateral that will be offered as payment in case of non-payment. In many cases this requires a personal guarantee by the entrepreneur. However, if the loans are worth the amount that is requested, the SBA will review the specifics of the contract and make sure that the guidelines have been met.
Because of the way that business administration loans are structured, the interest rates are usually much lower than they would be for private loans. This is good news for the prospective borrowers as it makes paying back loans much more affordable. Typically, you can borrow about 25% of the total value of the business which is also known as the equity. The SBA also has a number of programs in place for assistance to small businesses that are in distress.
Because these loans are usually backed by the SBA, they have very specific guidelines to follow in order to get approved. Usually, the entrepreneur will need to prove that he or she will employ at least two full-time employees during the first two years that the business operates. In addition, the entrepreneur will have to submit financial documents that will allow the SBA to evaluate the business. These documents may also include bank statements, profit and loss statements, and other documentation that will allow the SBA to determine the amount of money that will be loaned.
Business loans are also backed by certain regulations that must be followed in order for the entrepreneur to receive the funds. For instance, there are strict guidelines that must be followed in order to ensure that the loans will not be provided to another company that is in competition with the new company that wishes to take out the loan. In addition to these regulations, there are also tests that must be passed in order to ensure that the entrepreneur is actually worthy of receiving the funds.
As you can see, there is a lot that goes into small business administration loans. Naturally, they are easier to obtain than personal loans. However, just because they are easy to obtain does not mean that they are easy to pay off as well. Before you ever sign up for a business loan, you should consult a few business owners who can give you insider information on what lenders are best for you and what your best options are.
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