Every American dreams of having their own business and while most of us will never be corporate giants, many of us can more easily achieve the goal of having our own small business. It will certainly mean a dedication of energy and a commitment of long hours to make this dream a reality, but what most of us don’t realize is that it will also require a small business loan. We may need some initial funding to open the doors on our new hardware store or barber shop or we may require a small business loan to keep our gardening center operating through the long winter season.
Whatever the reasons for our small business loan there are certain requirements that any bank or financial institution will ask us to meet before they lend us back some of the money that we have deposited with them over the years. Those requirements can be summed up as being eligible and creditworthy in the eyes of the banks and financial institutions. Once we can do that we can then be eligible for a number of forms of small business loans in order to be successful entrepreneurs.
The Small Business Administration of the federal government is one source of funds for small business loans. They make available guaranteed amounts of money for banks to provide to small businesses who meet the criteria noted above. One of the most common small business loans is called a 7 (a) loan. This refers to section 7 (a) of the Small Business Act and authorizes the agency to provide a series of financial assistance options to owners of small businesses. Banks and other commercial lending institutions can access these funds to provide them to eligible small businesses and while the bank lends the money, the Small Business Administration guarantees payment if the lender defaults on the loan.
To become eligible for a small business loan the business must be able to show that it has the capacity to pay back any monies that are borrowed. That means that a company must be able to show proof of revenue and customers to the bank in sufficient quantities that they can no longer continue to operate but can also pay back any monies borrowed at the same time. Once this information is presented to the bank they can then make a judgment on the eligibility of the small business loan request.
The second criteria, being creditworthy, is a little more complex and involves research by the bank on the company and its principals to see if they have a proven track record of paying their bills in the past. One document that may be requested is called a “Statement of Personal History” from each owner or operator of the company to verify this information.
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