Updated: Wed, 08/21/2013 - 00:08

Growing your business with an SBA loan

Photo provided Josh Colsson is a member of the tax department at Hancock Askew & Co., LLP
Photo provided Josh Colsson is a member of the tax department at Hancock Askew & Co., LLP
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A common struggle a lot of small businesses face when attempting to grow their business is the inability to raise capital. This additional capital could be for a number of purposes.

The most common purpose tends to be for a necessary purchase to advance their business to the next level.

Small Business Loans have provided a helpful way for many small businesses to borrow money at a “below market” rate. All Small Business Administration (SBA) loan programs are operated through private-sector lenders and, in turn, the SBA agrees to guarantee a large percentage of the principal balance of the loan.

This percentage can range from 50 to 70 percent depending on the size of loan as well as other specific variables of the business.

The SBA’s most popular loan is known as the 7(a) Loan Program. It is targeted toward startups and small businesses. It contains four specific types of loans that have proven to be the most flexible in regard to the terms and liability of the small business.

The four types are the export loan program, the express loan program, the rural lender advantage program and the special purpose loan program.

The express loan is the most common of the four because it allows the company to obtain the loan in the quickest way possible. It does not limit the lending to specific industries or businesses as the export and rural lender advantage programs do.

Obtaining these loans, given the flexibility of the loan as well as the beneficial rates, can be a lengthy process, but there are ways to speed the process up.

You will be asked to provide past tax returns (personal and business) and financial statements of the business. You might also be asked to provide budgets for the upcoming years as well as other miscellaneous information about the company and the business owner.

It is up to the business owner to provide the necessary documentation in an organized, straightforward manner to eliminate delays. Providing a large amount of detail and documentation about the business allows the lending process to get off to a smooth start while giving the lender the impression you are serious about this process and have taken time to prove it.

By treating the lending process like a job interview, you may edge out someone who was equally qualified for the same type of loan. We typically recommend researching what this lender is going to require and putting together a tabbed binder that is carefully organized and labeled.

You will impress the lender and make his or her job 10 times easier.

Another item to consider when going through this process is the collateral requirement.

Most SBA loans require the company to have a certain amount of inventory, assets or other capital to pledge toward this loan. If these items are not present, it will be hard to get approved.

This type of loan is not for a company that is struggling with cash flow issues and needs the money to meet the next couple of payroll runs. The fact that the SBA is guaranteeing a large portion of the loan puts a bigger requirement on the business to be “in good standing.”

An SBA loan is a way to grow your business but not necessarily a way to save your business. It can provide the necessary boost a small business needs to match a competitor that has been slightly ahead of them or to venture into a new area of business that has the potential to be profitable.

By taking the first step and researching different loans or talking to a trusted advisor about the possibility of an SBA loan for your business, you could be on your way to taking your small business to the next level.

If you have questions about putting together your initial application package or would like some help with the process, you should contact your tax adviser, or call us. We would be happy to help.

Josh Colsson is a member of the tax department at Hancock Askew & Co., LLP, and he can be reached at 912-234-8243 or jcolsson@hancockaskew.com.

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