How to Get a Small Business Startup Loan

According to the SBA, there were 637,100 new business start-ups in America in 2007. Additionally, an estimated 65 percent of small businesses are funded by traditional loans from commercial banks. So for the majority of new businesses, getting a small business start-up loan is one of the first goals that needs to be achieved for the business. The process of getting a business start-up loan is more complicated than that of a personal loan because you are required to submit additional items that prove the viability of your business idea.

Difficulty:

Moderately Challenging

Instructions

Things You'll Need

• List of lenders in your area
• SBA application
• Collateral

1. Draw up a full business plan complete with financials, an executive summary, a detailed background about the owners, and most importantly, information on why you need a loan. How much do you need? What do you plan to do with this money if it is granted?

2. Compile a list of all of the banks in your area who lend to small businesses. Visit their branches and pick up brochures related to their small business lending program. If possible, have a chat with one of the account managers at the bank to ask about their requirements, and to see if they are certified under the government's SBA (United States Small Business Association) loan program.

3. Pick one lender that you believe has the best rates, terms and reputation, and apply for a loan. You will most likely need to give them your business plan and fill out a detailed application from the bank.

4. Go forward with your business plan if you are approved. But if denied, apply for an SBA loan. Only people who are denied for regular financing can apply for the SBA program.

5. Decide which SBA program is perfect for your needs. Since this is a start-up business, you will most likely want to go with the SBA's Basic 7(a) Loan Guaranty program. This program is designed to help start-up businesses that need loans of up to $2 million. Up to 75 percent of the loan is guaranteed by the SBA, if approved.

6. Download the appropriate SBA forms online, and fill them out meticulously. To be approved for an SBA loan, you need your SBA form, business plan, resumes, business license, details about your loan request, collateral and good credit. Additionally, all owners must have proven management abilities and good character, meaning that they are upstanding members of the community with good ethics and values.

7. Submit everything to the SBA, listing your desired lender (in many cases you may be able to go back to the original lender you chose). They will make their decision based on the quality and thoroughness of your application paperwork. The SBA will usually give a decision within 3 to 5 business days.

Tips & Warnings

• The SBA is not a lender; it is a guarantor. So do not expect the SBA to pay you directly. If you are not well-versed on how to write business plans, hire someone to help you.

• Don't rush through the development of your business plan. This is an extremely important element of getting a small business start-up loan.

Resources

• SBA Forms
• SBA Stats