A Guide to Financing Your Small Business
Whether you’re starting a new business or expanding an existing one, securing financing is often a crucial step in achieving your goals. Small business loans provide business owners with the capital needed to grow without sacrificing ownership equity. With the right loan, entrepreneurs can maintain control of their business while accessing the funds necessary for success.
In this guide, we’ll explore different types of small business loans, their benefits, and how they can help strengthen your business. We will cover key loan aspects such as:
- Down Payment: The initial investment required from the borrower, typically a percentage of total project costs.
- Loan Terms: The conditions of the loan, including interest rates and repayment periods.
- Working Capital: Financing available for everyday operational expenses.
- Financial Covenants: Restrictions set by the lender to ensure financial responsibility.
- Personal Guarantees: A borrower’s agreement to be personally responsible for repayment.
- Choosing the Right Lender: Guidance on selecting a financial institution that fits your business needs.
SBA 7(a) Loans
The Small Business Administration (SBA) offers government-backed loan programs that allow business owners to obtain capital with less stringent requirements than traditional loans. The SBA does not provide the funds directly; rather, they guarantee a portion of the loan to reduce lender risk.
The SBA 7(a) loan is the most popular SBA loan, used for various purposes such as starting a business, acquiring an existing company, or funding expansion.
- Down Payment: Typically 10% or more, based on cash flow analysis.
- Loan Terms: Long-term financing (typically 10 to 25 years), with maximum loan amounts up to $5 million.
- Working Capital: Can be included in the loan amount to support business stability.
- Financial Covenants: Fewer restrictions compared to conventional loans.
- Personal Guarantees: Required for individuals owning 20% or more of the business.
- Choosing the Right Lender: Paradise Bank, as an SBA-preferred lender, can streamline the loan process and provide faster approval.
How Do Small Business Loans Work?
A small business loan provides access to funds for growth, expansion, and operational stability. Lenders evaluate eligibility based on factors such as revenue, collateral, cash flow, and creditworthiness. The specific requirements and terms vary by loan type and lender.
Am I Eligible?
Eligibility criteria vary, but most lenders require:
- Time in business
- Personal and business credit score
- Annual revenue
- Bank statements
- Business plan and projections
- Purpose of the loan
- Collateral
At Paradise Bank, we understand the importance of finding the right financing solution. Whether you need an SBA loan, or line of credit, our experienced team is here to guide you through the process. Contact us today to explore your options and take the next step in growing your business.