Securing a Small Business Loan Quickly.

In today’s economy, borrowing money from your local bank isn’t as easy as it used to be. For the small business owner without much collateral, the alternative to a bank loan might be to consider a government-backed loan.

The good news is, there is a loan program from the SBA – called SBA Express – that makes the process of procuring a government loan quick, attractive, and accessible to small business owners looking to start-up or expand quickly.

The SBA Express program offers small businesses the chance to get an SBA-backed loan of up to $350,000 to start-up or expand operations. The “express” piece refers to that fact that your loan can be turned around in 36 hours.

Here’s what you need to know about SBA Express:

• Facts and Figures - SBA Express is available to existing or start-up for-profit businesses. You can borrow up to $350,000 or up to $25,000 in an unsecured loan. The maximum loan term is seven years; interest rates vary but must not exceed SBA maximums.
• Using Your Loan - You can use the loan to expand your business, purchase an existing business or obtain working capital. You can also use the loan to refinance existing business debt that is not already structured with reasonable terms and conditions. These are just general guidelines; the SBA has more specific guidance here.
• Eligibility and Getting Started - To apply for an SBA loan, start by getting a list of SBA lenders in your area. You can do this by contacting your local SBA District Office.

Other Options for Small Businesses

If you don’t need the level of financing offered by SBA Express, you may want to consider SBA Microloans. With a microloan you can borrow up to $35,000. The average loan, however, is a lot lower and can sometimes be in the hundreds of dollars, making this loan ideal for home-based businesses looking to set-up or expand.

If you’re still having trouble pinpointing the right loan for your business, consider using the new SBA Business Gateway program’s grants and loans tool or explore other loan options offered by the U.S. government.

It’s All in the Planning

Like the old saying goes, “poor planning equals poor performance”, and it’s the same with loans. If you really want to succeed in securing the right loan for your business, you must have a rock solid business plan.

You can find lots of planning resources here to help you document your businesses missions and goals and, of course, explain how you are going to get there.

Ten Tips for Avoiding Hidden Loan Costs.

Let's face it: getting approved for a business loan is exciting. But in your excitement, don't forget to read the fine print.

Many loans have hidden costs, including annual fees, bank charges, closing costs, commissions, and balloon payments. So stay focused and clear-minded during the loan process. Read more about Bank Loans for Small Businesses. Here are some tips that can save you hundreds, if not thousands of dollars, over the life of your loan.

1. Do your homework. You've probably spent substantial time researching the viability of your business concept; likewise, employ the same careful consideration when looking for a loan. Consult with the Better Business Bureau to check for complaints against a particular lender, and ask colleagues or contact the Small Business Administration for referrals to reputable lenders. Learn about Small Business Loan Scams.

2. Ask lots of questions. Borrowing money for your business is a serious decision. Ask as many questions as you need to, to feel comfortable with the loan terms and conditions. Make sure you understand your annual percentage rate, the amount of your monthly payments, and how long you will pay them.

3. Have a lawyer or other expert review your loan documents. This is especially important if you are inexperienced in the loan process. If a lender attempts to talk you out of having someone look over the documents, proceed with extreme caution.

4. Take your time. Don't rush into a loan agreement with the first lender who approves you. Shop around and compare interest rates and costs, just as you would with any other important shopping decision.

5. Read every word in the loan agreement before you sign. During the loan process, consider every piece of paper you sign as a binding contract. Never sign anything that you haven't read in its entirety and do not, under any circumstances, sign a blank document or a document with empty lines that could be filled in later.

6. Avoid loans with balloon payments. While they may seem reasonable now, loans with balloon payments may come back to haunt you later. Balloon payments may be acceptable in very limited circumstances, but they are usually bad news for small businesses.

7. Always choose a loan with positive amortization. If you choose a nonamortizing loan, you will find your loan balance getting bigger each month instead of smaller.

8. Beware of high prepayment penalties. If all goes according to plan, your business will soon be flourishing, and you may have the funds to pay down your loan more quickly. But if your loan agreement contains a prepayment penalty clause, you may end up paying significantly more than the original loan amount. Some lenders will include prepayment penalties to prevent you from refinancing a high-interest loan.

9. Know your complete financial picture and credit score. Before you fill out a loan application, gather your personal financial statements and credit reports from the major credit reporting agencies. Once you have a solid understanding of your credit risk, you stand a better chance of getting the best interest rate and not becoming prey to abusive lenders who may try to steer you toward a higher-cost loan.

10. Refinance with care. Before you refinance to a lower interest rate, find out exactly what fees and other charges will be assessed. Some unscrupulous lenders offer deceptively low initial rates and hit you with big fees after you sign the loan agreement.

Top 10 Mistakes Made When Applying for a Business Loan.

Whether you're applying for a business loan or a personal loan, there are common mistakes that can hinder the process. Below are 10 of the most common mistakes made when applying for a loan.

1. Not knowing your credit rating. Before you apply for a loan, you need to know where you stand. Get copies of your credit scores from the three major credit bureaus so you will know if you're likely to get the loan approved.
2. Not reading the terms carefully before signing. In your haste to get a loan, you may commit the common mistake of jumping the gun and signing without reading the details and terms of the loan. Not only should you take the time to read everything very carefully, but you should also ask questions about anything you do not fully understand.
3. Not locking in a rate. Interest rates change. If you think you've found a good rate, lock it in before it goes up. Too often, people make the mistake of getting greedy and waiting for interest rates to drop farther.
4. Not explaining what the loan is for. When applying for a business loan, you need to indicate how the money will be used. Lenders want to see that you know exactly what your needs are and how this loan will meet those needs.
5. Making major changes. Just as you do not want to open and close various credit cards before applying for a personal loan, you do not want to make significant personnel or other changes to your ongoing business structure before applying for a business loan. Lenders want to be able to see stability in how you do business and with whom.
6. Applying only to the most convenient lender. Although there are various lenders available, many people still head to their local bank first without shopping around. Credit unions and other sources are worth investigating. For example, if you are a small business owner, you should consider what the Small Business Administration can do through one of their loan programs.
7. Not having your finances up-to-date. Whether you are seeking a personal or business loan, you shouldn't apply without having the proper financial documentation. This is an area where many people put the cart before the horse, and try to get a loan without making sure their financials are up-to-date.
8. Failing to have some equity in the project. Not unlike a down payment when buying a home, having some equity in a business project significantly enhances your chances of securing a business loan. If you're not invested in the project, or in the business itself, the lender will be less enthusiastic about taking on such a risk.
9. Having no collateral. You need to provide some collateral, should there be a default in payment.
10. Not having a business plan. If you're starting a business, you need to demonstrate how the business will operate and make money. A business plan is essential for a lender to see your goals and specifically, how you intend to reach them. You must include all applicable supporting data, including financials.