Small Business Loans (SBA Loans) are administered by the U.S. Small Business Administration, which is essentially a federal agency that aims to help entrepreneurs develop their business. The SBA ultimately sets guidelines for loans made by lenders and micro-lending institutions. By reducing the total risk for lenders, it makes it easier for small businesses to acquire these loans.
Taking out a loan for a small business is a major financial decision and it is crucial that you are well aware of the conditions and terms of the process. It is important to decide why you need to take out a loan: 1) To grow a new business. 2) Maintain stability in your current business. 3) Save a business doing quite poorly. By categorizing your needs, you can properly cater how you want to approach the loan process and decide upon diversifying your assets.
Once you have decided to take out a loan for whatever reason, there are a set of rules that must be followed to ensure stability. Obviously, even before acquiring the funds, you are going to need a strong business plan for the foreseeable future. It does not make sense to dive deeper into debt without having a financial outline of your business. This outlook should include expansion of your services/products in the upcoming months, financials, marketing, human resources and labor, and any outside contracts and partnerships. An important question to answer with this model is: does this outlook allow for long-term profitability? The plan should also consider economic risks, profitability to service both the debt and interest as well. Is the economy heading towards a downward fall or is there any outside risk which could threaten the profitability of your company?
Taking out a small business loan can be the key to helping your company survive and thrive, but it is essential that you stick to your business model and keep that focus. You must be committed to working harder than ever before and get your business to the top. Common mistakes with these types of loans are using the money to pay off debts from non-business association. Taking on more and more debt to pay other debt is ultimately an endless spiral which you will never be able to overcome. That being said, do not get tempted to make unnecessary or personal purchases under a company loan. Using business funds for renovations, remodeling, etc. is not a smart investment especially early on because you can trap yourself if your model fails. Taking out a small business loan is just the first step towards revitalizing your company and without the extra effort and commitment to success, you will end up at square one again, but this time with an even bigger financial hole.