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2018

Now that you’ve gotten familiar with the loan choices the SBA offers, you may be ready to apply. Here, we give you a step-by-step checklist of everything you need to do to complete and present the necessary paperwork and cover all your bases.

How to Apply for an SBA Loan− SBA Loans Guide Part 3

 

You can also read Part 1: "Overview" here and Part 2: "Types of Loans" here.

 

Click here to download the SBA Loans Overview guide (PDF).

 

 

Learn more about Small Business Administration Loans
& Financing through Bank of America.

There are several types of loans available from the Small Business Administration (SBA).

 

What is a Small Business Administration loan?

In part 2 of our 3 part series, discover all the loan choices at your fingertips, so you can do your due diligence, compare your choices, and select the one loan that’s perfect for your business.

 

You can also read Part 1: "An Overview of SBA Loans" by clicking here and How to Apply for an SBA Loan− SBA Loans Guide Part 3.

 

Click here to download the Types of SBA Loans guide (PDF).

 

 

Learn more about Small Business Administration Loans
& Financing through Bank of America.

Does your business need a loan? Consider one from the Small Business Administration (SBA). In our three-part series, you can explore all your SBA loan options to make a more informed decision and get the loan that fits your business needs best.

What is a Small Business Administration loan?

 

Part 1 provides an overview of what SBA loans are and how they can benefit your business. You can read about the different types of SBA loans in Part 2 by clicking here.

 

Click here to download the SBA Loans Overview guide (PDF).

 

 

Learn more about Small Business Administration Loans
& Financing through Bank of America.

Back in 2005, Chancey Peake was a housekeeper and nanny in Greenville, S. C. It was there she began to make what would become her soon-to-be-acclaimed, almost world-famous, banana bread.

 

As fate would have it, not long after perfecting her recipe and launching a side business selling the bread, the family for whom Chancey worked decided to move to Texas, leaving Chancey without a job or income. But what she did have was a great recipe for banana bread that people went, well, bananas over, so she and her husband stared to sell it at the local Farmer’s Market.

 

The bread was a hit from the start, and the legend of Chancey's “Banana Manna” grew. And, while she loved the attention, what Chancey really wanted was her own storefront.

 

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And that is where the magic of microfinance came into play.

 

With the help of Kiva.org, Chancey got a $2,000 microfinance loan and, even with that little amount of startup capital, was able to rent and launch her own brick-and-mortar bakery. Chancey now sells 15 varieties of banana bread and recently brought on two part-time employees.

 

In the world of microfinance, as the story of Banana Manna proves, a little money can go a long way.

 

Traditionally, when it comes to lending and investing, banks and other lenders look for bigger, more established businesses. But the problem with this is two-fold:

 

      • First, a lot of businesses, startups especially, do not need five, six, and seven figure loans. They need something smaller.
      • Second, many of the solopreneurs who start small enterprises do not have the credit to secure a big loan or investment, even if they needed one.

 

That’s where microfinance comes in. Microfinance is a way for small businesses to get microloans, even if they have poor or no credit. The very size of microloans makes any individual loan a small risk.

 

Microfinance began in the developing world. Specifically, it was the Grameen Bank in Bangladesh that created this model, lending millions of dollars in loans as small as $100 to would-be entrepreneurs. Farmers were able to buy a cow, seamstresses could buy cloth. And it worked. Millions of solopreneurs were launched, and, maybe even more remarkably, these unsecured loans had a 97% pay back rate.

 

A good idea like this spreads, and as such, microfinance came to the U.S. about a decade ago, but with a twist. Typically, the loans are a little bigger (in the thousands, not hundreds), but even here, guidelines are relaxed and the loans are easier to get than traditional business loans.

Another great aspect of microfinance is that lending decisions are made based on reasons beyond one’s FICO score, bank balance, and collateralization ability. Microlenders look at a bigger picture, including:

 

      • Experience
      • Passion
      • Opportunity

 

So, where can you find a microloan? Here are your best bets:


CDFIs: Community Development Financial Institutions – or CDFIs – specialize in offering affordable microloans for individuals, small businesses, nonprofits, and other moderate- to low-income organizations. You will want to start this process by finding a CDFI near you.

 

And, I am happy to note, our friends at Bank of America are big financial supporters of CDFIs nationwide[GK1] .[BE2]

 

              RELATED CONTENT: Need Capital? Consider a CDFI

 

Accion: Accion is one of the pioneers of microlending in America. They offer loans from $500 up to $1 million, though, for example, the average microloan size in their Chicago office is $9,000. 

 

The Small Business Administration: The SBA does not directly offer microloans, but is a major funder of microloans for third-party lenders. Typically, the average SBA microloan sits at around $13,000. Learn more here. 

 

               RELATED CONTENT:  An Overview of SBA Loans - SBA Loans Guide Part 1

               RELATED CONTENT:  Types of SBA Loans - SBA Loans Guide Part 2

               RELATED CONTENT:  How to Apply for an SBA Loan - SBA Loans Guide Part 3

 

Grameen America: As you now know, Grameen Bank started out in Bangladesh. It came to the U.S. a few years back. Grameen America’s maximum first-time loan is $1,500.

 

Kiva: This is the group that helped Chancey. Kiva came to the U.S. in 2010 and is one of the major microlenders today. All loans are funded by user donations. American borrowers can be lent up to $10,000.

 

Microloans: a great idea whose time has come.

About Steve Strauss

 

Steve Strauss Headshot New.png

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business SuccessSteven D. Strauss.

 

Web: www.theselfemployed.com or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

 

Bank of America, N.A. Member FDIC.  ©2018 Bank of America Corporation

Many years ago, a friend of mine came to me with an intriguing business problem. He had long wanted to start his own business. He decided he wanted to buy either an existing business or a franchise, the thinking being that he didn’t want to have to start a business from scratch.

 

When we looked at franchises, it became apparent that a franchise wasn’t going to work for him for two reasons. First, he really wasn’t the type to take direction well, a requirement for being a franchise. Second, most franchises were beyond his financial capacity.

 

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Buying an existing business

 

So he decided to buy an existing business. Generally speaking, buying an established business is a  good idea for several reasons:

  • First, there is less risk. You can review the books of the business and get a pretty good idea as to how much money you can expect to make
  • Second, there is the built-in clientele
  • Third, you do not have to spend years creating a brand; goodwill is already established
  • Finally, it is sometimes possible to get the present owner to stick around for a while (six months or so) in order to teach you the business.

 

Seller financing

 

My suggested solution was that, beyond finding an existing business, that he specifically look for one where the owner was willing to help finance the purchase. This sort of financing is well known in the real estate industry where the owner agrees to “carry the paper” for the buyer. The homeowner’s note is usually recorded as a second mortgage and is paid off in due time. The same idea is at play with owner financing in the sale of a business. The owner carries the paper and is paid off over time.

 

Why would a seller help finance the purchase of his business?

 

Usually, a business owner will finance the sale of his or her business for one of several reasons:

 

First, it might be a slow market or bad economy. Seller financing can help expedite a sale in those circumstances.

 

Second, it could be that it is not a great business. If the seller cannot sell the business the old-fashioned way – via a broker and getting the buyer to pay 100 percent – it may be because the business is sort of like a car that is a lemon. The owner figures that financing the business will at least make it someone else’s lemon.

 

Finally, and this is what we looked for, there are times when a seller is, as they say, “highly motivated,” and so helping out the buyer financially with the sale helps move the business faster. It may be that he’s getting divorced and needs cash or, or that she is ready to retire and move to the Bahamas and wants to cash out. Whatever. The seller needs cash now.

 

How it works

 

In my friend’s case, we found a good business that was listed for $65,000. The owner had been given the chance to teach overseas and wanted to sell the business pronto. The problem was that my friend only had $25,000 and didn’t qualify for a $40,000 business loan.

 

But we convinced the seller to carry a $25,000 note and that carried the day. My friend was able to put $25,000 down, the owner carried a note for another $25,000, and then we were able to get him a $15,000 bank loan to cover the balance.

 

By offering a motivated owner a way out, a chance to sell the business if they carry some paper, you become a solution to their problem.

 

Are there risks? Of course, this is business after all.

 

The main risk is that the buyer will default on the loan and the owner will be forced to repossess a business he no longer wants. But a business owner can reduce the likelihood of that happening by doing some due diligence. The seller must check out the buyer as much as the buyer must check out the seller and the business.

 

But the good news is that once everyone agrees that the other party and the business are on the up-and-up, then seller financing is a creative way to solve everyone’s problems. In the case of my friend, he still owns that business to this day and makes a very good living with it.

 

And the previous owner? She made 12 percent on her $25,000 over three years. Not a bad deal for all concerned.

 

About Steve Strauss

Steve Strauss Headshot New.png

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business SuccessSteven D. Strauss.

 

Web: www.theselfemployed.com or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

 

Bank of America, N.A. Member FDIC.  ©2018 Bank of America Corporation

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