Navigating the labyrinth of small business financing in Missouri can often feel overwhelming, but in this article, we will go through one source of funding which is government small business loans. Created to foster economic development, these financial resources are designed to propel small businesses towards success, offering the necessary boost to overcome financial obstacles and achieve their objectives.
Also see: 10 tips for getting a small business loan
Demystifying Government Small Business Loans
Contrary to popular belief, the federal government isn’t typically handing out cash to small businesses. Instead, they offer government small business loans – a unique form of assistance that provides an approved lender, such as a credit union or commercial lender, a guarantee to back the loan. The benefit here is the reduced risk for lenders, which in turn makes it easier for small businesses, like yours, to secure the financing they need.
Traditional lenders view small businesses, especially startups, as high-risk borrowers due to a lack of collateral or established credit. However, government-backed loans are specifically designed to support these businesses, even when they don’t meet traditional lending standards. Don’t be fooled, though; it doesn’t mean every business can get a slice of this financial pie. A feasible business idea, a strong business plan, and the owner’s credit history are key ingredients.
Unraveling the Types of Government Loans
Diversity is the spice of life, and this holds true for small business financing options too. We’ll delve into some of the more popular ones: the SBA 7(a), SBA 504 loan, SBA microloans, and the USDA B&I program.
SBA 7(a) Loan
The 7(a) loan program is the Small Business Administration’s (SBA) leading actor in the realm of small business loans. It’s particularly advantageous when a business purchase includes real estate, but it’s versatile and can be used for various other purposes, such as working capital, refinancing existing business debt, purchasing and installing machinery, equipment, furniture, and more.
To qualify, your business must operate for profit, meet the SBA’s criteria of a small business, and have sound financial resources. Most importantly, the business owner should be able to demonstrate a reasonable ability to repay the loan. With the SBA 7(a) loan program, your small business has the potential to secure up to $5 million.
SBA 504 Loan
The SBA 504 loan program, managed by Certified Development Companies (CDCs), is designed to stimulate business growth and job creation. It provides long-term, fixed-rate financing for major fixed assets like real estate and equipment. You could be eligible for up to $5.5 million with this program, provided your business meets the SBA’s specific eligibility requirements.
SBA Microloans
For small businesses requiring small, short-term loans, SBA microloans are the go-to option. Offered through intermediary lenders, these loans cater to small business owners who require financial resources up to $50,000. While these loans do require some form of collateral and a personal guarantee, they often come with the added benefit of business counseling and training.
USDA B&I Loan
The United States Department of Agriculture (USDA) Business & Industry (B&I) Loan Program is a more niche option, providing loan guarantees to assist rural businesses. If your business operates in a rural area, this program can offer substantial financial assistance to bolster your business activities.
How does a small business in Missouri get an SBA loan?
Step 1: Determine if Your Business Qualifies for an SBA Loan
Before diving into the application process, first ensure that your business meets the eligibility criteria set by the SBA. Your business must:
– Be for-profit.
– Operate in the U.S.
– Have invested equity.
– Have exhausted other financial resources, including personal assets, before seeking financial assistance.
In addition, you, as the owner, must demonstrate that the loan will be used for sound business purposes.
Step 2: Choose the Right SBA Loan for Your Business
There are several SBA loan programs available, and choosing the right one depends on your business needs. They range from the 7(a) loan for various business purposes, the 504 loan geared towards real estate and equipment, microloans for small, short-term loans, and others. You might want to speak with a loan specialist or Missouri Small Business Development Center advisor to help determine the right fit for your business.
Step 3: Find an SBA-Approved Lender
The SBA doesn’t lend directly to small businesses; instead, they work through partner lenders, community development organizations, and micro-lending institutions. Therefore, you’ll need to find a lender who can facilitate your loan. Many banks in Missouri offer SBA-backed loans, and the SBA has a free online Lender Match tool that can connect you with approved lenders within 48 hours.
Step 4: Gather the Necessary Documentation
Preparing your loan application can be time-consuming, but being thorough can speed up the process. Documentation needed typically includes:
– Personal background and financial statement.
– Business financial statements, including profit and loss statements, projected financial statements, and ownership and affiliations.
– Business certificate/license.
– Loan application history.
– Income tax returns for the last three years.
– Business overview and history.
– Business lease.
Step 5: Complete and Submit Your Loan Application
Once you have all your documentation in order, you can complete the specific loan application form for the SBA loan program you have chosen. Your lender can guide you through this process, which will typically include information about how you plan to use the loan proceeds and how much you want to borrow.
Once your application is complete, submit it to your lender. The lender will review your application, and once it is approved by both the lender and the SBA, you’ll be on your way to receiving the financial support your business needs.
Final Thoughts
While the process to secure these loans involves some navigation, the potential rewards make these financing options worth exploring for any small business owner. Despite the additional paperwork and potentially higher costs, government-backed loans can be a lifeline for businesses that might not qualify for traditional business financing.
Remember, obtaining an SBA loan is a significant step for your business. Take your time, do your research, and don’t hesitate to seek help from professionals or the SBA’s resources, including their Small Business Development Centers (SBDCs) throughout Missouri. You’ve got this!