Do you want to learn how to access low-interest rate government loans such as SBA loans? Then below is an in-depth guide on how to apply and get government loans for your small business.
These are loans with a government-backed guarantee. Like most bank loans, they can be tough to get, and the process can be frustratingly long. But the repayment conditions are usually very friendly.
An example of a government loan program, and in fact the largest in the world is the Small Business Administration (SBA), a United States government agency that provides support to entrepreneurs and small businesses by giving them easier access to capital.
Although they are called government loans, these loans are technically not issued by the government agency in charge. Rather, the agency backs loans and promises to pay them in case of default, giving banks some comfort room to approve loans or allow borrowers to repay loans over a long period of time. So, in reality, these loans are issued by banks.
How to Apply for a Government Loan
Like other lenders, the government-backed business loan program takes significant risk on you as a small start-up business. For this reason, they want as much assurance as possible that they are not making a wrong decision by granting you a loan. So, your loan application should address their concerns as much as possible. Here are the steps you should follow when applying for a government-backed business loan:
1. Know what you have
Just as there is the SBA in the United States and YOUWIN in Nigeria, there are government-backed business loan agencies in other countries, too. You will need to find out if your Federal or State government has any such loan program. If none is available in your state and country, then a government loan can’t be on your list of financing options.
2. Do your homework
You will need to address all the issues that the government loan agency would look closely at (same as those explained earlier in the chapter under “How to apply for a bank loan”) before approving or denying your loan request.
In addition, however, the SBA has a program that helps U.S-based entrepreneurs develop strong business plans. So, when writing your business plan, you can use a business plan developed with SBA assistance as your guide. (The business plan guide in this e-book would suffice, though).
3. Choose a suitable loan option
Probably by speaking with a representative of the SBA (if you are in the U.S.) or your government’s loan agency (if you are outside the U.S.), you will need to find out which loan packages or programs are available.
Learn which of these programs apply best to your business and take advantage of any that addresses your industry or circumstances. Some loan programs prioritize certain businesses, so consider opting for loans that have been tailored to your business.
The SBA’s primary lending program is the 7(a) Loan Guarantee Program, which guarantees as much as 85 percent of loans up to $150,000 and 75 percent of loans of more than $150,000. The maximum loan amount under this program is $5 million. Other loan programs offered by the SBA include the 504 Fixed Asset Financing Program and the MicroLoan Program.
4. Obtain and fill your application
You need to obtain a loan application form and fill it carefully. If necessary, you can get help from an expert or an official of your government loan-issuing agency. The SBA offers assistance in the application process.
5. Prepare other needed documents
You will also need to prepare the supplemental forms as well as all documents you are required to attach along with your application. For SBA loans, the following supplemental forms must be filled and submitted:
Form 4 (Application for Business Loan)
Loan Repayment Statement (a brief statement indicating how you will repay the loan and how soon)
Form 4-a (Schedule of Collateral—Schedule A)
Form 413 (Personal Financial Statement)
Form 912 (Statement of Personal History)
Form 1624 (Certification Regarding Debarment, Suspension, Ineligibility, and Voluntary Exclusion Lower Tier Covered Transactions)
Form 1846 (Statement Regarding Lobbying)
Other documents usually required by government loan agencies include franchise agreement, purchase agreement, articles of incorporation, copies of licenses, letters of reference, partnership agreement, and so on.
6. Write your executive summary and cover letter
Your executive summary must summarize what your business is all about as well as your reasons for requesting the loan. Some government programs (such as the SBA) require a business profile. Your business plan will act as one.
7. Review and submit your application
After filling the application form, you need to review and proof your application. Unpardonable errors can blow your chances of getting the loan, so take your time to weed them out. After review and proofing, you can then submit your application.
Although getting a loan is not easy, by adopting the tips in this chapter, you will have greater chances of success. Generally, existing businesses are favored by banks, while startups are favored by government-loan agencies; but this isn’t etched in stone.
These are loans with a government-backed guarantee. Like most bank loans, they can be tough to get, and the process can be frustratingly long. But the repayment conditions are usually very friendly.
An example of a government loan program, and in fact the largest in the world is the Small Business Administration (SBA), a United States government agency that provides support to entrepreneurs and small businesses by giving them easier access to capital.
Although they are called government loans, these loans are technically not issued by the government agency in charge. Rather, the agency backs loans and promises to pay them in case of default, giving banks some comfort room to approve loans or allow borrowers to repay loans over a long period of time. So, in reality, these loans are issued by banks.
How to Apply for a Government Loan
Like other lenders, the government-backed business loan program takes significant risk on you as a small start-up business. For this reason, they want as much assurance as possible that they are not making a wrong decision by granting you a loan. So, your loan application should address their concerns as much as possible. Here are the steps you should follow when applying for a government-backed business loan:
1. Know what you have
Just as there is the SBA in the United States and YOUWIN in Nigeria, there are government-backed business loan agencies in other countries, too. You will need to find out if your Federal or State government has any such loan program. If none is available in your state and country, then a government loan can’t be on your list of financing options.
2. Do your homework
You will need to address all the issues that the government loan agency would look closely at (same as those explained earlier in the chapter under “How to apply for a bank loan”) before approving or denying your loan request.
In addition, however, the SBA has a program that helps U.S-based entrepreneurs develop strong business plans. So, when writing your business plan, you can use a business plan developed with SBA assistance as your guide. (The business plan guide in this e-book would suffice, though).
3. Choose a suitable loan option
Probably by speaking with a representative of the SBA (if you are in the U.S.) or your government’s loan agency (if you are outside the U.S.), you will need to find out which loan packages or programs are available.
Learn which of these programs apply best to your business and take advantage of any that addresses your industry or circumstances. Some loan programs prioritize certain businesses, so consider opting for loans that have been tailored to your business.
The SBA’s primary lending program is the 7(a) Loan Guarantee Program, which guarantees as much as 85 percent of loans up to $150,000 and 75 percent of loans of more than $150,000. The maximum loan amount under this program is $5 million. Other loan programs offered by the SBA include the 504 Fixed Asset Financing Program and the MicroLoan Program.
4. Obtain and fill your application
You need to obtain a loan application form and fill it carefully. If necessary, you can get help from an expert or an official of your government loan-issuing agency. The SBA offers assistance in the application process.
5. Prepare other needed documents
You will also need to prepare the supplemental forms as well as all documents you are required to attach along with your application. For SBA loans, the following supplemental forms must be filled and submitted:
Form 4 (Application for Business Loan)
Loan Repayment Statement (a brief statement indicating how you will repay the loan and how soon)
Form 4-a (Schedule of Collateral—Schedule A)
Form 413 (Personal Financial Statement)
Form 912 (Statement of Personal History)
Form 1624 (Certification Regarding Debarment, Suspension, Ineligibility, and Voluntary Exclusion Lower Tier Covered Transactions)
Form 1846 (Statement Regarding Lobbying)
Other documents usually required by government loan agencies include franchise agreement, purchase agreement, articles of incorporation, copies of licenses, letters of reference, partnership agreement, and so on.
6. Write your executive summary and cover letter
Your executive summary must summarize what your business is all about as well as your reasons for requesting the loan. Some government programs (such as the SBA) require a business profile. Your business plan will act as one.
7. Review and submit your application
After filling the application form, you need to review and proof your application. Unpardonable errors can blow your chances of getting the loan, so take your time to weed them out. After review and proofing, you can then submit your application.
Bottom line
Although getting a loan is not easy, by adopting the tips in this chapter, you will have greater chances of success. Generally, existing businesses are favored by banks, while startups are favored by government-loan agencies; but this isn’t etched in stone.
0 comments:
Post a Comment