We’ve discussed ways for start-ups to find funding previously on the blog, and one of the options is a loan. Banks can be hesitant about loaning to small businesses and startups, thanks to the uncertainty intertwined with starting a new business. It’s not impossible though, especially because of the Small Business Administration.
The Small Business Administration (SBA) is a federal agency that provides assistance to small businesses to help them receive loans. According to Kathleen Piper, a retired SBA deputy district director, the “primary function is to make sure that banks lend money to small businesses.” The SBA has at least one office in every state and is split up into 10 regions, so everyone has access to assistance. On their website, they describe themselves as a “cabinet-level federal agency fully dedicated to small business and provides counseling, capital, and contracting expertise.” So, what does that really mean?
The Small Business Administration gives a guarantee to banks that if they loan money to a small business and it happens to fail, they will still receive what they put in. Without that guarantee, banks can be extremely hesitant to do business with startups. “A bank’s main concern is ‘Can you pay the money back?’ so they are very risk adverse,” Kathleen said. With the guarantee from the SBA, banks are willing to take bigger risks and give startups the chance to thrive.
The SBA offers different loan options like 7(a) loans, 504 loans, microloans, and currently offers Coronavirus relief. Each loan type has different requirements. The type of loan best suited for your business typically depends on the business size and what the loan will be used for. The 504 loan can be utilized for new buildings or improvement of landscaping. The 7(a) can be used for things like long- and short-term working capital or establishing a new business.
The Small Business Administration doesn’t only guarantee the banks, but also provides an extensive learning platform. The Learning Center assists business owners in understanding business plans, launching and managing the business, marketing, and growing. They also offer Ascent, a free learning platform for women.
Kathleen owned her own small business, a flower shop. Not only does she have knowledge from 15 years at the SBA, but also from her own experiences. She has loads of advice to offer, so here’s a condensed list. Anyone looking for funding, get out a pen and some paper. You’ll want to write this down. Kathleen’s advice is:
- Separate your personal checking account from your business account; banks don’t want to see bootstrapping.
- When you go to talk to a bank, ask to speak to an SBA lender. All banks have someone who works with small business lending.
- Know the ins and outs of the business and all of its details. You need to be able to answer all questions on your own, so don’t go in to the big ask with an accountant.
- Be prepared to be turned down and be ready to shop for your loan. The bank that lends you money is essentially your business partner, so you want to make sure it’s a good fit. If you are turned down, ask why. It might hurt your feelings, but then you’re able to learn from your mistakes.
Whether you’re searching for funding or learning tools, the SBA has options for everyone.