Small Business Administration (SBA) Loans

As a new entrepreneur looking for capital, your first option will be the SBA, or to be exact, asking for an SBA-backed loan. SBA loan applications are made through a bank. In broad terms, the SBA guarantees a loan to the bank, so in case the borrower defaults, the bank is guaranteed a portion of the loan by the SBA. (You are still liable for the loan, so your obligation does not go away.) This makes it easier for banks to lend to budding entrepreneurs, but it does not mean that the bank can just lend indiscriminately. The bank will analyze the application to protect its interest as well as the SBA's.

Banks will look at the relevant experience of the business owner, Owner's Investment, Good Business Concept or Plan, Character, Capacity to Manage and Pay, Collateral and Guarantees when evaluating a loan.  If they feel that the project is too risky for the bank, they may ask for an extra guaranteel from the SBA.

SBA guaranteed Loans are one of the first financing options for start-up business, or businesses with short operational history.  Straight commercial loans are usually out of reach for those businesses (most banks require businesses to be in operations for 3 years to qualify)

The SBA does not lend directly to the business owner. It is important that the bank you are working with is knowledgeable about SBA loans, as it will initially process your application, not the SBA. The SBA will review the application once the bank approves it.

The SBA has very broad requirements, so most businesses can apply for a loan under this program. Remember, however, that the lenders have their own criteria that will be the decisive factor whether a business receives funding.

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