Every American dreams of owning their own business, and while most of us will never be corporate giants, many of us can more easily achieve the goal of owning our own small business. It will certainly take a dedication of energy and a commitment of many hours to make this dream come true, but what most of us don’t realize is that it will also require a small business loan. We may need some seed money to open the doors of our new hardware or barber shop, or we may need a small business loan to keep our garden center running through the long winter season.
Whatever the reasons for our small business loan, there are certain requirements that any bank or financial institution will ask us to meet before they will pay us back any of the money we have deposited with them over the years. These requirements can be summed up in being eligible and solvent in the eyes of banks and financial institutions. Once we can do that, we can be eligible for a number of forms of small business loans to be successful entrepreneurs.
The federal government’s Small Business Administration is a source of funds for small business loans. They make guaranteed amounts of money available for banks to provide to small businesses that meet the criteria mentioned above. One of the most common small business loans is called a 7(a) loan. This refers to section 7(a) of the Small Business Act and authorizes the agency to provide a number of financial assistance options to small business owners. Banks and other commercial lending institutions can access these funds to provide to eligible small businesses, and while the bank lends the money, the Small Business Administration guarantees payment if the lender defaults on the loan.
To be eligible for a small business loan, the business must be able to demonstrate that it has the ability to repay the money it borrowed. That means a business must be able to show the bank proof of income and customers in sufficient amounts to make them no longer able to continue operating, but also to repay the borrowed money at the same time. Once this information is presented to the bank, they can make a judgment about the eligibility of the small business loan application.
The second criterion, being creditworthy, is a bit more complex and involves an investigation by the bank of the company and its directors to see if they have a proven history of paying their bills in the past. One document that may be requested is called a “Personal History Statement” from each business owner or operator to verify this information.
