If you're a small business owner whose company needs an infusion of cash, the Small Business Administration (SBA) may be able to help. A federal agency charged with assisting small businesses, the SBA provides most of its assistance by loan guarantees to lenders. Such guarantees encourage private institutions (mostly banks and credit unions) to lend money to new or struggling businesses. SBA-backed loans, which can run from a few thousand dollars to hundreds of thousands, are very flexible. They can be used to finance working capital, equipment, furniture, buildings, and a variety of other business needs.

The most common type of SBA loan is offered through the 7(a) Loan Program. Under this program, a business applies directly to a private lender and the SBA insures or "guarantees" a percentage of the loan. If you, as the borrower, default on the payments, the lender will recover a portion of the outstanding loan balance. By reducing the lender's risk, the SBA emboldens otherwise reluctant lenders to provide funds to risky businesses. (Be aware, however, that SBA loan guarantees do not mitigate your responsibility for making loan payments.)

To be eligible for an SBA loan, your business must meet certain eligibility requirements. Obviously, you must plan to make a profit. (Charitable groups and other not-for-profit organizations need not apply). Because the SBA mandate includes strengthening the American economy, your firm must also do business (or propose to do business) in the United States. You'll also be asked whether you have funds available from other sources. So be prepared to divulge the nitty-gritty details of your personal, as well as your business, finances.

Of course, any legitimate lender will also scrutinize your ability to pay back the loan. (If your credit history indicates that unpaid bills are your stock in trade, don't expect an easy ride.) The lender will likely review the assumptions behind your company's cash flow projections. So come prepared to explain your financial forecasts (also known as pro forma statements). In addition, lenders will want to know that your company has a committed and competent management team. To this end, they may delve into your work experience, education, and history with prior business ventures. Time to spruce up your resume and fine tune your business plan.

The SBA also offers programs targeting veterans, underserved communities, and businesses affected by natural disasters. If you're considering an SBA loan, give us a call.

"Business Tips" are published monthly to provide useful business information. Return to this site every month for helpful suggestions on how to make your business more profitable. If you would like more information on anything in "Business Tips," or if you'd like to be on our mailing list to receive other business, tax, or financial information from time to time, please contact our office.

The business information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.

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