The Small Business Association
never actually lends any money. They simply provide a
guarantee to private lenders that a certain portion of the
loan will be covered. Although banks are not required
to participate in the SBA program, most
choose to do so. Let’s take a look
at how the loan process works when an
individual is trying to obtain an SBA small business loan
for the purpose of starting a
company.
Application. An individual would go
to a local lender and apply for an SBA Loan. This
generally would be what is called a 7 (a)
loan.
Application review. The applicant is
never guaranteed a loan through the SBA program. They
still must meet certain financial criteria to ensure the
lender that they are a worthy credit risk. Applicants
are judged based upon SBA 7 (a) standards.
Standards. There are 4 main factors
that a lender will consider 1) size of business 2) type
of business 3) use of the funds 4) availability of
capital from other sources.
Other determinations. The
applicant’s character and the likelihood that they will
be able to repay the loan. Any owner that has at least a
20% stake in the company must personally guarantee the
SBA small business loan.
Approval or denial. Once the
information has been reviewed the lender will make a
final decision.
Disclaimer: The information
provided in this site is not legal advice, but general
information on financial issues commonly encountered. We
shall not be liable for any errors in the content or for
any actions taken in reliance thereon. Please consult
your financial
advisor.
