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Every American dreams of owning their own business and while most of us will never become a large corporate, many of us can easily achieve the goal of starting our own small business. This will certainly mean a dedication of energy and a commitment over a long period of time to make this dream a reality, but most of us don’t realize that this will also require a small business loan. We may need some seed money to open our new hardware store or barbershop or we may need a small business loan to keep our gardening center going through the long winter season.
Whatever may be the reasons for our small business loan, there are certain requirements that any bank or financial institution will ask us to fulfill before they will give us back some of the money that we have deposited with them over the years. Those requirements can be expressed in terms of worthiness and creditworthiness in the eyes of banks and financial institutions. Once we do that, we can be eligible for a variety of small business loans to become successful entrepreneurs.
The federal government’s Small Business Administration is one source of funding for small business loans. They provide guaranteed funding for banks to provide to small businesses that meet the criteria mentioned above. One of the most common small business loans is called a 7(a) loan. It refers to Section 7(a) of the Small Business Act and authorizes the agency to provide a range of financial assistance options to owners of small businesses. Banks and other commercial lending institutions can use these funds to provide to eligible small businesses, and when the bank lends the money, the Small Business Administration guarantees payment if the lender defaults on the loan.
To be eligible for a small business loan, the business must be able to demonstrate that it has the ability to repay any amount of money borrowed. This means that a company needs to be able to show proof of revenue and customers to the bank in a sufficient amount that they can no longer continue to operate, but at the same time pay back any money borrowed. Once this information is submitted to the bank, they can decide on the eligibility of the small business loan request.
The second criterion, being creditworthy, is a bit more complicated 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. To verify this information, each owner or operator of the company may be requested a document called a “Statement of Personal History”.
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