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Small Business Success: SBA Loans

Video Transcription


David Nilssen:

If you’re starting or buying a small business, the last thing most people want to think about is financing. But in reality, it should be one of the first things you consider. We help entrepreneurs from all walks of life to acquire the finance that they need to buy or build a small business or franchise. One of the most common ways that we do that is with SBA loans. Now SBA loans go up to $5,000,000. But more than half of them fall within $350,000 to $1,000,000.

The Small Business Administration was created to guarantee loans for banks and they feel more comfortable lending to you as an entrepreneur. But the underwriting requirements can be really complicated. And for that reason a lot don’t get approved. So before you start that process, I want you to cover the five C’s with you so that we could talk about the main categories that banks looks at before deciding to give you a loan. That’s capital, credit, capacity, character and finally collateral.

Now capital is what they call the equity injection. That’s the amount of money they require you to put down as equity for the business itself. In general, with the start of the last 30% down and if you’re buying a new business somewhere between 10 and 20% from a credit standpoint, they just want to make sure that you have effectively manage your credit obligations, so generally looking for a 680 credit score or a little bit higher.

Capacity is about the ability to pay the loan back. So they want to know that your personal income and the business opportunity match the ability to service the debt ongoing. Character is about whether or not you’ve got the experience to operate that business that you are trying to purchase or start.

And then finally Collateral which is really defined as worthwhile assets. The bank is going to want to take some security for the loan that they are providing to make sure that they can get paid. Now, the application process for the SBA can be very difficult. We’ve figured out a way to make it streamline. Based on credit reports at 21% of people that fill up the full SBA package will actually get approved. And we’re seeing four times that success. So if you’re thinking about getting an SBA loan, you might consider getting it through Guidant Financial.

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