How to Get Government Loans for a Small Business
02 May, 2016 / Comments: Comments Off on How to Get Government Loans for a Small Business / By William Mahnic
Running a small business means you are in need of a decent amount of funds. Whether those funds are used to get you started, to purchase equipment, or to make improvements to your business property, there is a government loan available. The loans, called the government small business loans, are offered by individual lenders, but are backed by the government. This means that the government will repay the lender should you default on your loan. This makes it much easier for lenders to take the risk on small businesses.
Before you apply for a government loan, you have to determine the reason that you need it. This will help determine the exact type of loan you require as there are many different types. The lender will need specific uses for the loan, such as purchasing new equipment; eliminating costly debt; or opening a line of credit in order to have available funds. Be ready to be as specific as possible with what you will use the money for so that you can secure the right type of financing.
Determine the Type of Financing
Once you know what you will use the funds for, you can apply for the right type of loan. For example, if you are starting or expanding your business, you can apply for the 7(a) Loan Guarantee Program. The maximum amount allowed for this loan is $5 million. If your needs are more short-term, such as you need to purchase furniture or equipment, you can apply for the Microloan Program, which has a cap of $50,000. If your need for money will directly impact your community, you may be able to apply for the 504 Fixed Asset Program, which offers long-term and short-term fixed financing. If your business experienced any type of disaster, you can apply for the Business Disaster Assistance, which helps give you the funds to build your business back up.
Check with Your Industry
Every industry has a specific branch of government that oversees it. All too often, these branches get overlooked when they have the financing available to help businesses within the industry. You can call or go online to your government’s branch to see what is available. Each branch has specific funds set aside to lend out to small businesses in order to help the community. One specific branch is the US Department of Agriculture, which helps those businesses that deal with farming, which in turn helps the community.
Getting Yourself Qualified
Finding the small business loan that is right for you is not the hard part – qualifying for the loan is definitely harder. You have to show the lender and the SBA that you have exhausted all other potential avenues that could provide you with the funds necessary to do what you need to do. This includes using your personal assets to fund your business needs. In addition, you need to show that you are active in the business; that it is a small business; and have a good business credit report. The lender will tell you the exact specifics for each loan type, but having all of your ducks in a row beforehand can greatly enhance your ability to get a small business loan.
Your History Matters
Believe it or not, your personal history will play a role in whether or not you qualify for a small business loan. Lenders want to see a credible history regarding your prior work. They want to see that you have been in the industry and held prominent positions prior to opening your business. What they do not want to see is a fly-by-night idea that you threw together and are hoping it will work – they need credibility to ensure that the loan will go to a credible source.
Getting a small business loan can be a bit of work, but it is worth it in the end. Having a loan with a competitive interest rate and easy to qualify for guidelines can help you get up and running much faster than most other financing types. Make sure to do your homework and determine the type of financing you need so that you can get the process underway the first time around.