Now’s a great time to be in business. If you’ve thought of expanding a venture you already own or acquiring a new business, a Small Business Administration loan may be a more attractive option than ever.
A bipartisan bill was signed by the president in 2018 to make changes to the SBA lending program that can make SBA 7(a) loans an even more attractive option for entrepreneurs who are looking to acquire new businesses. Here are the two key changes.
More accessibility. Under the old rules, some SBA loans required up to 25 percent equity from borrowers in deals where goodwill exceeded $500,000. That’s been reduced to 10 percent, of which half can come in the form of a seller’s note.
Open to franchises. SBA loans were once open only to independent businesses. The changes have cleared the way for certain franchisees, as long as the franchise has already entered a franchise agreement addendum.
If SBA loans are a new concept for you, it’s important to understand what an SBA loan does and doesn’t do.
- SBA loans don’t come from the government. The government backs a portion of these loans, but they don’t lend the money.
- Because the loans are government-backed, these are more palatable to lenders because they’re less risky.
- With SBA loans, entrepreneurs who don’t qualify for a traditional loan can get loans with longer repayment terms and lower interest, so they can use their profits to pay their bills and grow their business.
All in all, SBA loans are an important economic development tool.
Whether you’re launching a startup or expanding, there are three things you can do to make sure your lending process and your business are successful.
Work with an SBA-preferred lender: The advantages of going this route are clear. Some banks have individual lenders who are certified as SBA-preferred lenders, including at Minnwest Bank. Working with one in your community has a dual advantage. The application process is faster, and you’ll work with a lender who is in touch with the needs and the growth of your community.
Tap the experts: Before you start, check out the many resources offered by the SBA Minnesota. Online, you’ll find numerous guides and resources to help you think through your startup and growth.
Create a strong business plan: Make sure it is thorough so the lender reviewing it understands why it would succeed. It should include key elements, like a management plan, financial plan, marketing plan and an operations plan. Your financial plan should detail your cash flow and how you’ll repay the loan.
