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As a business owner, you need money. That is probably not news to you, after all, it takes money to make money. Perhaps you’re buying a new location for a store or a piece of machinery to help with producing your product. Or maybe your need is as simple as a cash flow problem – you need money to help grease the wheels and keep things running until the next big order comes in. Regardless of your need, there are a few options for you. You could, of course, try to save up the money you need yourself. This is not practical for most businesses, as the opportunity, they are trying to take advantage of may very well be gone by the time they have the funds in the bank. The next option is to go to a bank for a loan. This is a common course of action, and it is no secret that the American economy runs on credit. However, for some businesses loans are not a good option. Many small businesses struggle to qualify for a traditional bank loan. They might be too small or deemed too much of a risk, still unproven in the market. If that is the case raising capital through bonds or a stock sale is probably also out of the question.
Thankfully, there is a solution for just this kind of problem. The Small Business Administration exists to help American small businesses overcome these challenges. That is why they created the 7(a) loan program. The SBA loans a significant amount of money – up to $7.5 million at a time – to intermediary institutions, often banks themselves. They then use this money to make loans to small businesses which are backed by the SBA. If the business defaults, the SBA will pay at least part of the bill.
One specific type of loan they offer is the SBA Express loan. These are meant for businesses that need their capital now. An SBA Express loan can be completed in as little as 36 hours. Here is how you qualify:
Check your eligibility for an SBA Express loan
The first step is to verify that your business is eligible. Despite some disqualifying factors, most businesses ought to have no problem passing the initial screening. The qualifications for the Express Loan program fall under the general 7(a) loan rules, meaning businesses engaged in gambling activities, loan packing, pyramid marketing, or illegal activities are not eligible. For a full list of criteria, see the SBA’s 7(a) rules and regulations site.
A few other considerations – the business must have been engaged in commerce for at least two years and must also have exhausted all other financing options. The SBA only wants this program to benefit businesses that cannot gain access to capital through regular loans.
Locate an institution
The SBA has a list of lenders on their website, or you can simply go to your regular business bank and ask if they provide the loans. If they do not, they ought to know other options for you. It is worth shopping around, as the loans are not totally standardized, and different banks may provide different rates and levels of customer service to you. It is important to remember that express loans – which are part of the 7(a) program – are meant to be self-funding. This means that the SBA does not receive taxpayer money to keep this program afloat. Rather, it uses the money from the program itself. Businesses taking these loans incur a small fee, often less than 1% of the loans overall value, amortized over the life of the loan. This is to guard against the increased risk inherent in these loans, making sure the program can stay around indefinitely.
Fill out the forms
As with any financial transaction, there will be plenty of paperwork to keep you busy. The SBA provides the forms on their website. Some are for the lender to fill out while others are intended for the lessee to complete. Each owner with a more than 20% stake in the business must fill out SBA Form 1919, providing information about themselves as a borrower. Your personal credit score and assets will be considered in the loan process. Lessees must also keep a copy of IRS form 4506-T in their folder. The other major forms are filled out by the lender, although the lender may require additional paperwork to be filled out by the lessee.
Overall, the SBA makes the process to file for an Express loan relatively painless. The only other major thing to keep in mind is that your personal financial information is a factor in granting the loan. If an owner of the business has not exhausted their own financial resources (within reason) then the SBA may deny them the loan since it is meant as an option of last resort. SBA Express loans, in particular, are the last resort option for businesses that need cash right now. Once you’ve found your lender there is no time to waste!
You may also like: 10 Ways You Can Fund Your Business as a Young Entrepreneur
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