There are four ways that an entrepreneur can find money to do business in the United States.
4 lending options
- Borrowing money from a bank secured with subsequent payment of interest is not always a convenient option, since at the initial stage a businessman may not have the necessary collateral.
- An agreement with an investor who, in exchange for financial support, will get a share in the business.
- The opportunity to seek help from the Small Business Administration – SBA – the largest government organization in the United States, designed to develop the economy engine – small business.
The organization’s activities have several directions:
- together with the state support and the help of private lenders, open the way for entrepreneurs to capital (microloans, loans, venture capital).
- develop a business (inexpensive training, free consultations, interesting trainings – everything you need for beginners).
- provide access to government contracts (23%) to small businesses.
- protect the interests of small businesses (legislation is being analyzed for pressure on small businesses, initiatives are being promoted at the government level, etc).
An entrepreneur engaged in a small business can count on help from the SBA and government contracts. The company size is necessarily estimated by the staff of the institution. For example, if an organization is engaged in wholesale trade, then it should not employ over 100 people.
If we talk about the format of work, the SBA is a kind of “showcase” where businessmen can post their ideas, and lenders can choose promising offers.
Types of financing
Type A – credit programs
- 7 (a) – loan guarantee. Under this program, over 50,000 enterprises a year get support from the organization. Almost 7,000 commercial banks are ready to help in lending, 80% of all loans for short and long term are issued under this scheme. The average loan amount is $250,000.
- Program 504CDC. The goal of this program is to help young businessmen in matters of long-term financing of the company. To maximize its efficiency, SBA uses a network of non-profit corporations – CDCs. The task of these companies is, with the help of SBA and private lenders, to provide jobs and loans to the population in each individual district.
- Microloans. A company can obtain online loan through SBA intermediaries – various NGOs. The loan amount doesn’t exceed $35,000.
Type B – venture capital
SBIC is an investment assistance program specially designed for small growing companies. The SBA licenses venture capital funds, which form SBIC companies, or limited liability companies – LLCs. These companies take loans from SBA, in return they have to invest money in small business (in securities, stocks, etc). When entrepreneurs return the money invested, SBIC companies also pay SBA for loans issued. Such financing can last for a long time – up to 10 years.
Type C – assistance to enterprises affected by emergencies
This is the main state lending program in the event of natural disasters, industrial disasters and other force majeure circumstances. Loans are issued to, for example, restore uninsured commercial property. Loan amount is not over $200,000. The SBA paid out nearly $ 500,000,000 to various entrepreneurs whose businesses were hit by the 9/11 event.
How to get started with SBA?
To get started with SBA, you need to create your profile on the organization’s website and try to fill it out in as much detail as possible. Opening it, the lender must clearly understand what the company is and its activities, what is the purpose of obtaining a loan, the timing and period of debt repayment.
In the application, you should definitely tell about all these points:
- type of company;
- a product or service description;
- provide a short company history (when it was created, how long it has been operating, who are its owners, what form of ownership, etc.);
- provide information on annual sales, profits, payback;
- indicate the number of employees;
- the level of competition;
- tell about potential customers and suppliers;
- management experience (include a resume of each owner and staff in management positions).
The borrower must provide a forecast of future operations at least one year in advance. This can be done in the form of a diagram. This is necessary so that the lender understands how a businessman assesses the general state of the industry, what plans he makes, how realistic he assesses the situation on the market.
It is also necessary to fill out the request form SBA 4. Here the undertaking should describe how exactly the loan money will be used, in what amount, and also say what type of loan is required.
In the section “Loan repayment”, you should write about how and during what time the loan will be repaid (all terms should be clearly specified). The sources of repayment are also worth mentioning.
In your profile, you must also provide a list of real estate objects, assets that will serve as collateral. You should not rely on financial assistance without this item. All applications for funding must be supported by the indication of at least two repayment sources.
The SBA may require financial statements from all owners, partners, employees and shareholders of the borrowing company who own 20 % and over of the business. The organization may also request tax returns for the past 3 years.
It is worth attaching to the application the schedule of debt obligations. The more complete the information provided, the more chances that the loan will be issued.
It is also necessary to attach to the documents for obtaining a loan:
- commercial real estate lease documents (copies);
- franchise agreement (if any);
- share purchase agreement;
- articles of association;
- business plan;
- copies of licenses;
- letters of recommendation;
- partnership agreement.
Here is a list of SBA organizations by state.
During the registration process on the website, a businessman must fill out a short applicationso that SBA specialists can determine the viability of the project, select lenders, who will then be offered the created profile.
The profile itself is not a loan application, It is an intermidiate step that will help connect a particular entrepreneur with a lender whose interests coincide. The lender himself will have 2 working days to respond to the offer received by him. If he does not do this, the link will lose its relevance, which will be considered a refusal.