Start Up Business Loans

How can you start a business of your own?  What if you only have a limited budget?  What are the things you must know about business start up financing options provided by the SBA?  Can you really start a business with the help of a start up loan?  How can you qualify for an SBA business loan?  These are the questions we’ll be answering on this article. 

Loans from the U.S. Small Business Association (SBA)

SBA loans are government loans that are offered for small businesses whose loan applications were rejected by other business loan lenders.  If you tried acquiring a business loan from a bank or a financial institution but failed, you can seek help from the SBA.

The business loans are not directly provided by the SBA.  Instead, the SBA contacts commercial lenders and gives assistance so that the loan can be approved.  Presently, there are three loan programs provided by the SBA and these are the basic loan program, the 504 loan program and the micro loan. 

The basic loan program is the most sought-after loan and can be used by almost any type of business.  On the other hand, the 504 loan specifically provides financing assistance for growing businesses in need of real estate or equipment.  Lastly, the microloan is a short term business loan that provides a smaller financing loan amounting that amounts to $35,000 and below.

Another requirement for an SBA business loan is that you have to do all banking transactions for your business from the same bank that provided the loan.  Also, it’s important to know that in order to be considered for an SBA loan, you need to have previously applied for a business from a lender but your application was denied.

Applying for an SBA Loan

Applying for an SBA loan is not an easy process.    The application process for an SBA loan often takes several months to complete.  If you need funding quickly or is looking for fast approval, you may want to seek other start up financing options instead. 

The turn-around time for an SBA loan is not the length of time that applies to the whole process.  The turn around time starts from the moment the applicant meets with the lender to discuss the loan proposal to the submission of the necessary documents required by the lender.  On average, the turn-around time is between one to five business days.

What about the interest rates?  How are the interest rates calculated?  SBA loans have variable interest rates.  Thus, the interest rate of your business loan may either drop or rise depending on the prime rate in the market.  Nevertheless, the SBA sets a limit for the maximum interest rate that can be imposed on the loan.

Last but not the least, business owners and aspiring entrepreneurs who plan on applying for a business loan- whether an SBA loan or a conventional business loan- must check their credit reports first before submitting their loan applications.

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Fresh signs emerged Wednesday that the battered US economy was slowly reviving, with data showing stability or growth in the key sectors of housing and manufacturing.

Government data showed sales of new US homes rose 4.7 per cent in February after six months of declines.

The gain was the latest in a series of positive surprises for the US housing market, which saw a bubble burst that plunged the US economy in recession in 2007.

Earlier this week, industry figures showed US existing home sales saw a surprise rebound in February, rising 5.1 per cent to a stronger-than-expected annual pace of 4.72 million units, although prices fell.

Last week, government data showed US home construction starts and permits saw a surprise jump in February from 50-year lows.

Wednesday’s figures suggested a bottom in the market was hit in January when new homes sales fell to a revised annual pace of 322,000.

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Start Up Business Financing

According to a recent federal government research, about 75% of US jobs today are provided by small businesses.  Add to this, about 99.7% of US employers are actually, small business entrepreneurs.  With these staggering numbers in mind, it is obvious that small businesses need all the support they can get from the government in order to continue flourishing and contribute to the economy.

The Role of the SBA

The SBA (Small Business Administration) was established in the US in 1953.  It’s primarily goal is to assist small business entrepreneurs with their respective business ventures.  Although the SBA doesn’t directly provide loans for small business, this government agency provides assistance to ensure small businesses that they receive the financing they need from private lenders.

With the assistance from the SBA, a small business can rely on the SBA to guarantee major portions of the loan on their behalf so that their loan application can be easily approved by a lender.  And because the borrower is supported by the SBA, the lending company would be able to offer lower interest rates and more flexible repayment terms to the borrower.   There are three types of loans provided by the SBA.  These are:

• the Basic7 Loan Guarantee where the maximum amount of loan is up to $2 million, to be provided by an SBA accredited commercial lender;
• the 504 Loan Program which is directed by the CDC (Certified Development Company) and is designed for entrepreneurs who want to help their community through the operations of the business.
• the MicroLoan which is offered for start-up or growing small businesses who needs additional financing assistance.  The maximum loan amount for this type of SBA loan is $35,000 and can be used for purchasing equipment, supplies, stocks, or inventory.  Take note however that the money cannot be used to pay debts.

Requirements of SBA Loans

Before applying for an SBA loan, a small business needs to have previously applied for a loan but was declined by the lender.  In other words, you need to have first attempted to seek a loan on your own before asking help from the SBA.  If you’ve been denied by a lender for any reason, you can turn to the SBA for more assistance.

When submitting your SBA loan application, it is crucial that all information you provide are correct and accurate.  For instance, you’ll be required to declare the type of your business, the number of employees you have, your sales revenue and other financial information about your business within the past three years.  You will also be expected to submit your balance sheets, account statements, tax returns, business licenses, and the collateral you plan to use. 

Obviously, SBA loans are limited to small businesses only.  Generally, businesses with 500 employees and below are considered as small businesses.  Also, small businesses are expected not to exceed $6-$12 million for its average annual sales for the past three years.  Exceeding this quota would mean that a business is big enough to finance itself without help from the SBA.

Read More The Role of SBA Loans and how to Qualify

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As Fort Lauderdale banker Keith P. Costello was scouting for investors to start Broward Bank of Commerce, the financial industry’s prospects darkened by the day.

Bear Stearns went belly up. Lehman Brothers filed for bankruptcy. Washington Mutual was seized by regulators; Wachovia and Merrill Lynch rushed to be acquired. As the global banking crisis spread, icons such as Citigroup, Bank of America and Goldman Sachs were taking federal bailout money.

All of which convinced Costello he was on the right track.

‘The more I saw the economy was deteriorating, the more I thought `This is perfect,’ ‘’ says Costello, 52, who is president and chief executive of the tiny community bank that opened Jan. 12. “It’s counterintuitive.'’

With the competition weakened, Costello and fellow organizers of Broward Bank of Commerce - a group of mostly local businessmen - are in the catbird seat. They plan to attract business customers whose banks, saddled with bad loans, are unable to lend or so inwardly focused they aren’t serving customers well.

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Start Up Business Credit Cards

If you plan to start up your own business, one of the first things you should prepare for is your business financing.  Many first time entrepreneurs excitedly plunged into business without making the necessary planning and preparation.  As a result, their lack of preparation has led them to failure. 

Insufficient business funds can also be a big hindrance in the growth and stability of any business.  In this article, let’s discuss the most important pointers that you should remember about starting up a business, particularly with regards to financing.

Create an efficient business plan. 

Have you created your business plan?  If you’re going to apply for traditional banks loans or business financing loans, a well-written business plan is a major requirement.  Lenders and investors would give the approval of your loan application based on how well your plan is presented.  Of course, lenders and investors would like to know whether your proposed business is a feasible and promising one. 

Your business plan is just as useful for you as it is to your lenders.  A business plan helps you focus on your goal and thus, would enable you to make more effective decisions.  Still, this doesn’t mean that a business plan is unalterable.  As you move along with the business, certain details about the business plan you’ve created can be modified or changed depending on the situation.

Find a business financing option that works best for you.

Now that you’re done with your business plan, the next step is to find a suitable business financing option.  Bear in mind that you have several choices of financing your business such as bank loans, government grants, capitalists or angel investors and other unconventional methods.

For instance, applying for a government grant may not be for everyone but if you qualify, then it would certainly be a big help for your business.  Furthermore, the application process for a government grant may be longer than applying for commercial business loans.  Still, if you’re not in a hurry to start the business, this option is worth exploring.

Finding capitalists or angel investors who would fund your business is another possible choice.  Again, searching for a capitalist or an angel investor who would be willing to provide your financial needs involves more work and may take longer than other business financing options.  Still, if you’re confident about your business plan, there’s no reason why you shouldn’t try searching for a sponsor.

Bank loans and commercial loans have long been used by many successful businesses in the market.  Again, the approval of your loan application would greatly depend on the business plan you submit and the completion of your requirements.  Some lenders would require the submission of collateral while others do not.  Other basic requirements for bank loans and commercial loans are your business licenses and permits, insurance, and balance sheets (for established businesses).

Unconventional Business Financing Options

What about unconventional methods of business financing?  A good example of this category is business equipment leasing.  Leasing equipment doesn’t require any down payment and offers flexible repayment terms that you can choose from.  Thus, instead of borrowing money to be able to purchase the necessary equipment for your business, you may choose to “lease” or “rent” for a much lower start-up cost.

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MONMOUTH — On April 7, Warren County voters will again be asked to vote on a proposed sales tax increase. The Public Safety Tax would be for .75 percent, down from the 1 percent the county requested in November. It is estimated to generate about $400,000 annually. Warren County Board member and finance committee chairman Mike Pearson recently sat down to answer some questions about the proposed tax.

Q Why is the public safety tax necessary and what happens if it does not pass?

A The fiscal year 2009 county budget is short $113,900. If the tax passes, it does not begin until Jan. 1, 2010 and monies would not start to be received until April 2010. The sheriff’s department needs additional jail staff, an additional deputy and an additional detective, plus a huge amount of additional updated equipment. The other county offices (states attorney, circuit clerk, county clerk and treasurers) have all seen cuts over the last several years so that the sheriff’s department was not down sized. The outlook is, since we cannot reduce the number of jailers there will be fewer deputies and less other services available to all citizens of Warren County.

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Equipment Financing for Start up Businesses

Nowadays, entrepreneurs or newly start up businesses prefer to obtain equipment leasing as a way of financing their business.  By leasing business equipment, there is no need to spend a huge sum of money just for the purpose of buying brand new equipment or machineries that you need to start the business operations.  This enables a new business to save a lot and use its existing finances for maintenance and management purposes.

What are the basic points you need to learn about leasing equipment?  What should you know before leasing equipment?  In this article, we’ll be discussing some tips and advice for entrepreneurs who want to obtain equipment leasing. 

Equipment Leasing Responsibilities

Your leasing contract contains specific duties and responsibilities as a lessee.  First, you are subjected to submit the monthly lease payments to your leasing company.  In some cases, a lessee may choose a different payment term such as annual or semi-annual payment.  Regardless of your chosen payment term, it is your duty to duly submit your payments as scheduled or as stated in your lease contract.

Generally, equipment leasing does not require an expensive down payment.  Nevertheless, don’t forget that there may be other fees associated with your lease such as insurance fees, penalties, etc.  It’s very important that you clearly understand what these specific fees are before you sign the contract.

As a lessee, you are also expected to take proper care of the equipment you’re renting.  Sometimes, a lessee may decide to keep the equipment and purchase it at a low price after the lease term.  However, equipment leasing also gives you the option to simply return the equipment to your leasing company when your lease term is over.  In this case, you need to make sure that the equipment is still in good shape before returning it back to your lender.  If not, you can be penalized with a fee for not keeping the equipment in good condition.

Your lease contract may also include what is called the “Hell-Or-High-Water Clause”.  This clause ensures that you are obligated to submit lease payments all throughout your lease’s term regardless of any external event that could affect the performance of the equipment.  See to it that you understand the implications of this clause and the consequences it may have on your business.

Take note that your equipment lease contract is a binding contract and one that cannot be terminated.  Thus, keeping up with your lease payments is a must not only to avoid law suits but also to keep your business credit history in excellent standing.  In case of financial problems, talk to your lender immediately to inform them of your situation. 

As long as your lender can see that you’re willing to stay true to your payment obligations, your lender may be willing to adjust your payment due schedule or cut back on your payments as consideration.  On the opposite, defaulting on your lease payments could be very damaging for both you and your business.  In view of this, remember that an equipment lease contract is a serious responsibility that needs to be taken with utmost care and attention.

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Are you an angel? Angels are well-heeled individuals who invest in startups and who have business experience that makes them a valuable source of advice to those startups. Their investments are usually smaller and earlier than those of venture capitalists. They make investments with their own money and write their checks directly to startups.

Make no mistake — angel investors are in it for the money, and have no compunction about investing wherever a return can be found. But they also like to participate with the startup and offer their own expertise to mitigate the risk of the investment. In Hawai’i, angels typically provide that advice without charge.

For a startup that looks like it’s going to be a home run, angels may expect a return of 10 times the investment within five years, and an exit strategy like an acquisition or IPO. But they get 10 times only once in a while. For their entire portfolio, they may get a return of more like double or triple.

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Loans For New Businesses

Aside from the challenge of starting up a business, there is also the challenge of sustaining the business for a long term.  As a business owner, you can expect to meet a lot of expenses along the way.  There may be times when the available cash flow wouldn’t be enough to cover all your costs.  Without sufficient budget, an entrepreneur may be forced to temporarily stop manufacturing or stop its operations at least until financing is available.

When confronted with this situation, what can you do?  The proper management of working capital is crucial for the survival of any business.  In some cases, an entrepreneur must borrow funds to sustain the business operations.  Fortunately, there are different business-financing options that you can turn to.  In this article, let’s talk about cash advance business loans and how they can help you support your business.

Cash Advance Loans Provide Working Capital

If you own a business, have you considered obtaining a cash advance loan?  A cash advance loan is a short term business loan that entrepreneurs can avail at any time.  Unlike traditional bank loans, a cash advance loan can be obtained more quickly and with much less hassle. 

If you have existing invoices or accounts receivables, you can use these receipts to get a cash advance.  Thus, instead of waiting for your customer’s payments, you can immediately get the necessary cash needed to cover for your expenses.

Most lenders provide 80% cash advance from the total amount of the invoices submitted.  The other 20% would be provided after the lending company has received the complete payments from your customers.  As soon as your cash advance loan application is approved, you can receive the money right away.  In turn, your lender would take over the collection of your customer’s unpaid invoices.

Afterwards, a notice would be sent to your customers, informing them that their payments would now be submitted to the lending company.  Many customers are aware of this set-up but if not, the company would send a detailed letter of explanation to the customer concerning this arrangement.   Customers are given up to 60 days to submit their payments.  If they fail to do so, the other 20% of the invoices submitted would go the lending company.

What are the requirements for this type of loan?  Lenders who offer cash advance business loans usually require applicants to have a proof of stable income to qualify.  Those who have been in business operations for at least two years are great candidates for this loan.  Having a credit history is not at all necessary.  Still, if you have good or excellent credit rating, you can be sure that you can get an easier approval and better rates. 

When applying for a cash advance business loan, it is best to choose customers with a good payment history.   Hence, you can be assured that your customers would be able to pay off their bills on time and you’ll be able to receive the entire amount of the invoices you submitted.

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Vendor Equipment Leasing Programs

Mick Cookson, whose yachts have won world championships and the America’s Cup, says the global recession is putting his company in dry dock.

Cookson Boats, builder of vessels including Larry Ellison’s Sayonara, Roy Disney’s Pyewacket, and seven of Team New Zealand’s America’s Cup boats, says it expects to lay off all 62 of its workers at its shop in Auckland when its current projects are finished.

“We just can’t employ people to do nothing,” said Cookson, the 31-year-old company’s managing director, who plans to bring back employees when work returns. “There’s less people looking for boats. People are sitting on any money they’ve got to see what happens.”

In a sport where it cost Ernesto Bertarelli’s Alinghi 100 million euros ($136 million at the time) to defend its America’s Cup title in 2007, boat builders and marine-parts suppliers from Maine to New Zealand say they can’t make money as buyers abandon the market and banks withhold credit.

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