Starting Small Businesses

Guide To Starting Small Businesses With SBA Loans

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers important tips for starting small businesses for entrepreneurs and getting financing. Starting a business requires you to do a lot. You have to research, plan, get finances, and meet legal obligations. The first two years are the most risky and have the most dangers of failing when starting small businesses from scratch, advises CEO Mike Kortas, of NEXA Mortgage, LLC:

There is nothing easy about starting a business—people who start a business without a proper plan end up closing the business within no time. There is much information on Gustan Cho Associates and its subsidiary and affiliate websites.

Some of this information is useful, and others are not. It might seem confusing if you are starting your business. This article will give you six useful tips to help you get started with your business. This article will discuss important must-do tips and advice from experts when starting small businesses for entrepreneurs.

Do Market Research on Starting Small Businesses

What are 6 important tips for beginner small businesses for entrepreneursYou already have your business idea. You have to find out if your idea can succeed in the market. Go out and talk to potential customers and other business owners. This business idea must be run through a validation process. Will it be able to withstand the competition? Will this idea bud towards solving the problem in the market? How will your business penetrate the market? These are some basic questions you should ask yourself at this level.

Starting Small Businesses With a Business Plan

This statement is already a cliché, but a business plan is a must if you want to grow your small business. You have to know where you are going and how you will get there. Proper Planning will transform your business idea into a reality. Once you have established the business, you have to know what to do at every phase of the business until its successful growth. You should have a break-even analysis, cash flow, and profit-loss analysis in your business plan. A business plan helps you to visualize your business before you start it.

Taxes and Legal Requirements for Starting Small BusinessesHow to Open Up a Small Business and get a SBA loan on start

Now that you have both your business idea and plan ready. You need to look at the legal aspects of your business. According to Mat Grella, President of NEXA Mortgage, an easy way to spot a tax scam is to recognize that the IRS will never first inform you of a tax problem by telephone.

You should know the taxes and the legal requirements of starting a business to avoid incurring penalties on your young business. It is important that you pay taxes for your business.

This is how you establish business ownership. For more information about this aspect, you can consult experts to help you evaluate this. You must have the necessary licenses, permits, and other documents to run your business smoothly.

Start Small When Starting Small Businesses

The ultimate goal is to grow your business massively. However, you have to start small. In the beginning, ensure that you start small but surely. Growing a business is a process. It does not happen overnight. Many successful businesses will tell you about their humble beginnings.  

You start small. The importance of starting small is that you will be able to learn all the aspects of your business at every stage of its growth. Do not overburden yourself with too many expenses at the start by trying to go big.

You might collapse your business on the way, and it will be hard to recover it. You have to crawl before you can walk. This means even if you make a mistake in your small business, you can easily correct it, recover, and move forward. You will slowly attract customers; your business will be an empire before you know it.

Financing Starting Small Businesses

When starting, you do not need large amounts of money. You can start small. But, mostly, the initial startup capital is high. Before you start the business, you should have your source of funding. You will need capital to pay the utilities, advertisements, rent, production, and marketing.

You must have a budget and a clear picture of where you will get the money to start. It is advised that, for a start, you should at least use most of your money.

It will take some time for your small business to yield profits. If you are operating on a loan, you have to start servicing the loan as soon as possible. Using your own money when starting the business will give you an easier time to concentrate on growing it.

Promote Your Business Heavily

For your business to grow, you have to sell your goods or services. Most young businesses fail because the owners do not know how to sell. Create a marketing plan and have marketing ideas in place. You have to convince the clients to buy from you. This is how you attract customers. Starting small business is a learning process. You cannot have it all at the beginning. You will make a few mistakes here and there. You have to handle these mistakes diligently. Learn more important tips to help you grow your small business.

Using SBA Loans Starting Small Businesses

Are you a small business owner who wants to buy, refinance, or improve commercial real estate? If so, you may benefit from SBA mortgage loans. The Small Business Administration (SBA), a federal agency supporting small businesses and entrepreneurs, guarantees these loans.

This guide will explain the main types of SBA mortgage loans, their uses, rates, terms, and eligibility criteria. We will also give you some tips on how to apply for an SBA mortgage loan and where to find a suitable lender.

The SBA doesn’t directly provide loans but offers a guarantee on a portion of the loan if the borrower fails to repay. This lowers the risk for lenders and makes it easier for borrowers to get favorable terms and rates. There are different kinds of SBA mortgage loans, each with features and requirements.

Kinds of SBA Mortgage Loans

The two most common kinds of SBA mortgage loans are the 7 (a) and 504. Both can be used for commercial real estate purposes, but they have some differences that you should know.

What Are SBA 7 (a) Loans

SBA 7 (a) loans are the most in-demand and versatile kind of SBA loans. They can be used for various purposes, such as working capital, inventory, equipment, debt refinancing, and real estate. SBA 7 (a) loans can have either fixed or variable interest rates, negotiated between the borrower and the lender but subject to a maximum spread set by the SBA. The maximum loan amount is $5 million, and the repayment term is 25 years for real estate uses.

The SBA guarantees up to 85% of loans up to $150,000 and up to 75% over $150,000. The borrower has to pay a one-time guaranty fee based on the loan amount and maturity. The borrower may also have to pay other fees, such as packaging fees, closing costs, appraisal fees, etc.

To qualify for an SBA 7 (a) loan, you must operate a for-profit business in the U.S. or its territories.  Invest your time or money into the business. Have exhausted other sources of financing. Meet the SBAs size standards for your industry.  Use the loan proceeds for a sound business purpose.  Demonstrate the ability to repay the loan. Meet additional requirements set by the lender.

Starting Small Businesses Using SBA 504 Loans

SBA 504 or CDC/504 loans are designed for large equipment and real estate-related purchases. These loans come from three parties: A Certified Development Company (CDC), a nonprofit organization that works with the SBA to promote economic development (40%). A third-party lender may be a bank or credit union (50%).  The borrower (10%).

The SBA guarantees the CDC portion of the loan up to $5 million (or up to $5.5 million for some projects). The SBA does not guarantee the third-party lender portion but may have lower interest rates than conventional loans. The borrower has to contribute at least 10% as a down payment, which may be higher for new businesses or special-purpose properties.

SBA 504 loans are only used for land and building purchases, land improvements, including curbs, gutters, or parking lots, and building improvements, such as changing the exterior or updating electrical systems, equipment, and machinery purchases, debt refinancing (in specific scenarios).

SBA 504 loans cannot be used for working capital or inventory purchases. Additionally, SBA 504 loan projects must meet job creation or public policy goals as laid out by the SBA.

SBA 504 loans have fixed interest rates based on market conditions at the time of funding. The repayment terms are 10 or 20 years for equipment purchases and 20 or 25 years for real estate purchases.

Mortgage Guidelines For SBA 504 Loans Starting Small Businesses

To qualify for an SBA 504 loan, you must operate a for-profit business in the U.S. or its territories. Applicants must have a net worth below $15 million, and their average net income after taxes for the past two years must be less than $5 million. Occupy at least 51% of the property you are purchasing or renovating or at least 60% of the
property you are constructing. Create or retain one job for every $65,000 of the CDC portion of the loan or meet a community development or public policy goal. Meet any additional requirements set by your CDC and third-party lender.

How to Apply for an SBA Mortgage Loan

If you are interested in applying for an SBA mortgage loan, you must find a lender participating in the SBA loan program. You can use the SBAs Lender Match tool to find lenders offering business loans. Contact your local SBA district office or CDC for referrals and guidance. Once you have identified a potential lender, you will need to prepare a loan application package that includes the following:

  • A business plan that describes your business, its products or services, its market, its management team, its financial projections, and how you will use the loan proceeds.
  • The personal financial statement shows your assets, liabilities, income, and expenses.
  • Resume highlighting your relevant education, experience, and skills.
  • Personal credit report that shows your credit history and score.
  • Business credit report that shows your business credit history and score.
  • Tax return of your business for the past three years (or as long as you have been in business).
  • Personal tax returns for the past three years.
  • Financial statements for your business include balance sheets, income statements, cash flow statements, etc.
  • Collateral information that describes the property or equipment you are purchasing or refinancing with the loan, including its value, condition, and ownership status.
  • Legal documents that prove your business’s legal structure, ownership, registration, licenses, permits, contracts, leases, etc.

Depending on the kind and amount of the loan you seek, you may also need to provide additional information or documents. Your lender will review your application package and determine your eligibility and terms. Your lender will issue a commitment letter outlining the loan details if approved. You must then sign the loan agreement and pay any fees or closing costs. After that, you will receive the loan funds and start making monthly payments.

How Does Using SBA Loans Starting Small Businesses Work?

SBA mortgage loans are an excellent option for small business owners who need financing for commercial real estate purposes. They offer extended repayment terms, competitive interest rates, and low down payments. They also come with a guarantee from the SBA that lowers the risk for lenders and makes it easier for borrowers to qualify.

SBA mortgage loans have drawbacks, such as strict eligibility criteria, complex application processes, high fees and closing costs, and limited uses.

Therefore, before applying for an SBA mortgage loan, you should compare it with other financing options and choose the one that best suits your needs and goals. Contact us today if you need help finding an SBA-approved lender or preparing your loan application package. We are experts in SBA lending and can help you get the best deal for your commercial real estate project.

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