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Q & A With The SBA

[ 0 ] Mar. 15, 2014 | SBO Editor

SBA

We asked the United States Small Business Administration (SBA) to tell us what are the

most frequently asked questions the SBA receives from business owners or entrepreneurs looking to start a small biz. Here are the questions and the answers from the SBA.

Q # 1: How do I get a small business loan? Do I get it from the SBA?

Documentation requirements may vary; contact your lender for information you must supply. Common requirements include: purpose of the loan, history of the business, financial statements for three years (existing businesses), schedule of term debts (existing businesses), aging of accounts receivable and payable (existing businesses), projected opening-day balance sheet (new businesses), lease details, amount of investment in the business by the owner(s), projections of income, expenses and cash flow, signed personal financial statements and personal resume(s). You should take the information, including your loan proposal and submit it to a local lender. If the lender is unable to approve your loan, you may ask if the lender can consider your request under the SBA loan guaranty program. Under this program, the SBA can guaranty up to 85% of a small business loan; however, the lender must agree to loaning the money with the SBA guarantee. The lender will then forward your loan application and a credit analysis to the nearest SBA District Office. After receiving all documentation, the SBA analyzes the entire application, then makes its decision.

The process may take up to 10 days to complete. If the lender needs SBA applications and/or guidance it may contact the nearest SBA District Office by visiting http://www.sba.gov/localresources/index.html. Upon SBA approval, the lending institution closes the loan and disburses the funds.  To be eligible, a business must be operated for profit and not exceed SBA’s size standards. For further information and eligibility requirements, visit Contracting Opportunities.

Q # 2: How do I get a small business grant?

The U.S. Small Business Administration does not offer grants to start or expand small businesses, although it does offer a wide variety of loan programs. While SBA does offer some grant programs, these are generally designed to expand and enhance organizations that provide small business management, technical, or financial assistance. These grants generally support non-profit organizations, intermediary lending institutions, and state and local governments.

Q # 3: How do I get started in a business?

The U.S. Small Business Administration (SBA) provides a wealth of information on starting a business at the SBA home page (http://www.sba.gov/) under “Small Business Planner.” Within this category you will find information on entrepreneurship, writing a business plan, and managing and growing your business. You may also take advantage of SBA’s resource partners. Both the Service Corps of Retired Executives (SCORE) and the Small Business Development Centers (SBDC) provide free one-on-one counseling to those interested in starting and expanding a business. This includes, critiquing your business plan, legal requirements, marketing, and licenses needed for your business.

Q # 4: How do I get a business license?

Licensing is generally handled through your state or local government. See Licenses and Permits for more information.  For FREE one-on-one counseling, visit Counseling and Assistance for a local area contact nearest you. The Service Corps of Retired Executives, Small Business Development Centers and Women’s Business Centers can assist you.

Q # 5: How do I get a tax identification number?

For a Federal Tax ID number, please contact the Internal Revenue Service for Form SS4. This Form is available through their web site at http://www.irs.gov/pub/irs-pdf/fss4.pdf.  You may call the IRS at 1-800-829-1040 and ask for the Small Business Tax Kit #454.

Tax information for starting a business can be found by going to http://www.irs.gov/businesses/index.html. You will need to contact the Department of Revenue for state taxes (if any). Please consult your local telephone directory in the “State Government” section for the office in your state.

Q # 6: What type of collateral do I need for a SBA loan?

Repayment ability from the cash flow of the business is a primary consideration in the SBA loan decision process but good character, management capability, collateral, and owner’s equity contribution are also important considerations. All owners of twenty percent (20%) or more of the business are required to personally guarantee SBA loans.  The SBA does not deny approval for a SBA Guaranty Loan solely due to lack of collateral; however, it can be used as a reason, in addition to, other credit factors.

For more information on requirements on a SBA Guaranty Loan, as well as, our guaranty loan programs available, please visit us at http://www.sba.gov/financialassistance/borrowers/guaranteed/index.html

Q # 7: Is there any business assistance available in my area?                                           

Yes. There are 12,400 Service Corps of Retired Executives (SCORE) chapters and approximately 1,000 Small Business Development Centers (SBDC) nationwide. SCORE provides free, expert advice based on many years of firsthand experience and shared knowledge, on virtually every aspect of business. The SBDC provides a variety of management and technical assistance services to small businesses and potential entrepreneurs. To locate the nearest SCORE or SBDC in your area, please visit us at http://www.sba.gov/services/counseling/index.html and click on your state.

Q # 8: What classifies a business as “small”?

There is no “official” certification process that determines a small business. It is a self-certifying and paperless procedure. The U.S. Small Business Administration (SBA) uses the North American Industrial Classification System (NAICS) in determining size standards; which as of October 1, 2000, replaced the Standard Industrial Classification (SIC) Codes. To see if your business is considered small by the federal government, or to determine which NAICS Code(s) is applicable to your business, visit size standard topics at the sba.gov site.

Q # 9: How can I get my business certified as a woman or minority owned?

Your business must be owned and at least 51% controlled by one or more minorities. Women are not considered minorities. Certification as a woman-owned business is a self-certifying process and no paperwork needs to be filled out.  However, your state and local government may have different rules and regulations regarding their contracts and what their definitions are. Consult your state and local government for rules and requirements.

The U.S. Small Business Administration (SBA) has a certification process for the 8(a) Business Development Program to assist small businesses. This program assists in the development of small companies owned and operated at least 51% by individuals who are socially and economically disadvantaged. For more information on this program visit certifications at the sba.gov site.

Q # 10: What type of interest rate, terms and fees does the SBA require on its Guaranty Loan Program?

Your loan-repayment schedule depends on the use of the proceeds and the ability of your business to repay. The general terms are five to ten years for working capital; and up to 25 years for fixed assets such as the purchase or major renovation of real estate or the purchase of equipment (not to exceed the useful life of the equipment). Both fixed and variable interest rates are available. The interest rate is negotiated between the borrower and the lender/bank. However, lenders generally may not charge over the maximum rate of 2.25 percent over the lowest prime rate for a loan with a maturity of less than seven years and 2.75 percent over prime for a maturity of seven years or longer. For loans under $50,000, the lender’s rate may be slightly higher.

Vist www.sba.gov to learn more.

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