July 7, 2006

Detailed plan smooths SBA loan process

A Small Business Administration loan is an effective tool to help small businesses get started or expand their venture.

The SBA loan program allows a bank or lender to lower their risk on a loan because the government guarantees 50 to 75 percent of the loan if the small business defaults.

But even with the low risk for banks, be prepared to be detailed while filling out a substantial amount of paperwork.

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There’s a misconception that many startups are given preferential treatment for SBA loans, but the reality is that any entrepreneur needs a clear, detailed and viable business plan to obtain a loan.

In fact, many SBA loans go to established businesses that are looking to expand. Those existing business owners shouldn’t wait until they are financially strapped before applying for a loan. Commercial lenders want to make loans to businesses that are solvent.

SBA loans apply to small businesses with anywhere from one to 500 employees. Several types of SBA loans are available for different situations, including SBA 7(a) loans, SBA MicroLoans and the SBA 504 loan program.  

SBA 7(a) loans account for 90 percent of SBA lending and can be used for most sound business purposes, including working capital, machinery and equipment, furniture and fixtures, land and buildings, leasehold improvements and debt refinancing (under special conditions). Loan maturity is up to 10 years for working capital and up to 25 years for fixed-asset capital.

The 504 loan program is another option, one favored for commercial real estate loans, to fund real estate and land purchase, renovation of existing property or purchase of large equipment.

The SBA MicroLoan program is a good avenue for small startup businesses seeking short-term loans of $35,000 or less. The MicroLoan program is administered by the Colorado Enterprise Fund, an organization that is both a certified Community Development Financial Institution and an intermediary for the SBA MicroLoan program. Contact the Colorado Enterprise Fund at 303-860-0242 or 888-554-5539.

Information is available from SBA lenders or the Small Business Development Center at the Boulder Chamber of Commerce, 303-442-1475. A lending officer should be able to help you decide which loan is right for your situation.

When applying for an SBA loan, the loan proposal is the most important document to prepare. It shows the lender that you, the borrower, are prepared, professional and ready to talk business. A good loan proposal should contain a cover letter or summary, your business background, resume, references, the nature of the business, the amount and purpose of the loan request, the requested terms of repayment, how the funds will be used, and how the loan will be repaid.

The proposal also should provide details that explain the business and related industry trends; specifics on repayment, backed up by accurate cash-flow statements for a year.

Sample outlines for SBA proposals can be obtained from the SBA, the Service Corps of Retired Executives, the Small Business Development Center or a lending institution.

The SBA’s regional office and district office are both located in Denver at 721 19th St., Suites 400 and 426, respectively. The regional office telephone number is 303-844-0500. The district office telephone number is 303-844-2607. The SBA Web site is www.sba.gov.

The Colorado Lending Source, www.coloradolendingsource.org, is another place to find more information on the 504 loan program. It is a private nonprofit organization comprised of banks, business owners and proponents of economic development that provides assistance to small businesses seeking financing for purchases of real estate and large equipment.

A Small Business Administration loan is an effective tool to help small businesses get started or expand their venture.

The SBA loan program allows a bank or lender to lower their risk on a loan because the government guarantees 50 to 75 percent of the loan if the small business defaults.

But even with the low risk for banks, be prepared to be detailed while filling out a substantial amount of paperwork.

There’s a misconception that many startups are given preferential treatment for SBA loans, but the reality is that any entrepreneur needs a clear, detailed and viable business plan to obtain a…

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