When buying a business, your business broker San Diego will make you aware of the SBA loans. This is the government backed option of financing business acquisition. SBA is an abbreviation for Small Business Administration. With this option, you will get funds at an interest rate of between 5.5% and 8%. The SBA loans are very popular today because of the low interest rates and because banks are cutting back on small business lending.
All in all, it is good to note that uncertainties on the approval processes are what keep most small businesses from applying for the SBA loan. In this post we shall be looking at the two main considerations that are made to determine approval for the SBA loan.
When considering the SBA loan, it is good to note that this loan doesn’t come directly to the small business. The SBA loan partially guarantees loans against nonpayment. The loan is not sent directly to you. This is a very important distinction you need to remember when your business brokers San Diego recommend the SBA loan. You should also remember that there are two approvals that take place: by the bank/financial institution and by the SBA on the loan guarantee. The standards set for bank approval are higher than those by the SBA. This is because the bank will have a risk on the part of the loan that is not guaranteed by the SBA.
- Personal credit for the business owner
When applying for the SBA loan to help you purchase a business, you must have a good credit score. The required credit score is at least 650 or 700 in order for you to be approved. The reason you need a great credit score is because both the SBA and the financial institution want you to demonstrate your financial responsibility in paying debts. SBA loans have personal guarantee requirements because they will have to pay the loan if you are unable to pay. As a result of this, your creditworthiness is a vital consideration.
- Ability to generate cash flow to cover the loan payments
To be approved for the SBA loan, your annual compensation and business profits must be at least 1.25 higher than the annual loan payments. Banks don’t want you to default on loans. To guarantee this they will review your business’ financial history to ensure you will have the finances to cover loan payments.
If you are getting an SBA loan to buy a business, your business broker San Diego will help you better prepare for the application and ensure that you qualify. The broker will also help with the process since applying for an SBA loan is much more complicated than getting a loan from the bank.