How Do I Know How Much “SBA” Small Business Loans I Am Eligible For?
Understanding SBA Small Business Loans & It’s Eligibility
Starting a small business is an exciting and rewarding venture, but securing the necessary financing can also be daunting. One common question we receive at Benetrends Financial is, “How do I know how much SBA small business loans can I be eligible for?” In this blog, you’ll find the answer to that question and helpful tips to guide you through the loan process.
Calculating Your Total Project Cost
Firstly, you need to determine the total project cost required to open your business and operate it for at least the first 3-6 months. This “total estimated project cost” should include everything from the franchise fee, advertising, building construction, working capital, licenses and permits, to professional services, and more.
The Importance of Equity Injection and Post-Closing Liquidity
Depending on your project type, such as leased space or one including commercial real estate, lenders usually require a 20% equity injection (down payment) from borrowers before disbursing any loan funds. This means you must invest 20% of the cost to get the entire business running from your own funds before the lender pays for anything with the loan. Additionally, you must demonstrate that you have the 20% equity injection requirement and sufficient liquidity to cover personal debts such as living expenses, car payments, student loan payments, and other liabilities. The amount of liquidity requirement, often called post-closing liquidity, depends on your overall financial situation. In short, you must show that you can cover your expenses while getting your business off the ground.
Collateral Requirements for SBA Loans
Collateral is another crucial factor to consider. Lenders require full collateralization for any loan size over $350k. So, if you plan to borrow more than $350k, expect to pledge personal property or other forms of collateral to the bank. Remember that although the SBA guarantees 75% of the loan, you may still need to pledge collateral.
Managing Your Total SBA Loan Exposure
The SBA considers the total exposure of all your SBA loans as a single number. If you take out multiple SBA loans within a certain timeframe, the SBA adds each loan amount together, affecting your eligibility and total closing costs for the loans. Thus, tracking your total exposure and understanding its impact on your eligibility for future loans is crucial.
Key Factors in Determining SBA Loan Eligibility
Your eligibility for an SBA small business loan depends on several factors, including your credit score, business plan, financial history, and the amount of collateral you can provide. We will analyze your personal financial composition and the business you plan to open to align you with the best SBA-backed lending product.
How Benetrends Financial Can Help You Secure Financing
At Benetrends Financial, we recognize that securing financing for your small business can be complex and sometimes confusing. That’s why we provide personalized assistance to guide you through the loan application process and ensure you have the best chance of securing the financing you need to succeed. Our SBA Operations Specialist, Michael Morgan, is available to answer your questions and offer the guidance and support you need to launch your business.
Successfully Navigating the SBA Loan Process
Determining your eligibility for an SBA small business loan can be intricate, but with the right understanding of requirements and the assistance of an expert like Benetrends Financial, you can improve your chances of securing the financing you need to start or grow your business. Keep the total project cost, equity injection, liquidity, and collateral requirements in mind. With the right preparation and guidance, you can turn your dream of owning a successful small business into a reality.
Written by: Michael Morgan, SBA Operations Specialist at Benetrends Financial