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Securing an SBA Loan

SBA LoanImage by thekirbster via Flickr

Securing an Small Business Administration loan is often painted as an incredible frustrating task. 

This can be true when the borrower is using a lending institution which is not familiar with the process and has not informed the borrower of their lack of experience. Borrowers desiring an efficient process should always seek preferred SBA lenders or a loan broker specializing in securing SBA loans.

The nice thing about a loan broker is that they only get paid when they place your loan and will shop your application nationally.

While the SBA itself does not make loans, they guarantee up to 75 percent of a loan that a traditional lender will make under the SBA's 7(a) program. The maximum loan amounts change periodically and your lender can provide you with the current amounts. 

As I'm sure you can appreciate, there are numerous conditions attached to SBA loans and some points to note about them which are as follows. 

1.  The business must demonstrate that it can support the debt based upon prior year's tax returns (usually 3 to 4 years of returns).

2.  The buyer's required down payment can vary, but generally is around 20% to 40% depending upon the business.

3.  Almost all SBA loans will require the seller to participate in the financing and be in second position to the bank.

4.  The SBA wants to have as much security as possible for the loan through a combination of the business' and your personal assets including your house.

5.  Loan fees are quite steep; however, the SBA will finance them over the term of the loan (how nice!). Nevertheless, the fees are generally meaningless relative to getting the financing and completing the acquisition.

For more information, click here to visit the SBA's website.

 In summary, given our current economic conditions, almost all lenders, to protect themselves, are placing their business loans with the SBA.  In addition, while the SBA sets minimum loan standards, it does not mean that a lender can have a higher set of standards for a loan.

Good luck!

- Steve Sink

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