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Business Start-up Frequently Asked Questions Part2
Marketing | Small Business Statistics
Finance:
- How much money do I need to get started?
- What are the alternatives in financing a business?
- What do I have to do to get a loan?
- What financial statements will I need?
SBA Loans/Grants:
- Does the SBA have business grants?
- Does SBA offer grants for small business startup?
- How do I know if I qualify as a small business so I can receive SBA assistance?
- What other restrictions are there?
- Do I have to be declined by a bank?
- What is the interest rate?
- What are the loan limits?
- How much money do I need to have in order to qualify for an SBA loan?
- How long will it take to get my loan?
- Where can I get the loan application?
- Do I qualify as a small business?
- How do I get certified for special SBA programs?
- How do I buy a business and what help does the SBA website offer?
- How do I sell my business?
How much money do I need to get started?
Once you have taken care of your building and equipment needs you also must have enough money on hand to cover operating expenses for at least a year. These expenses include your salary as the owner and money to repay your loans. One of the leading causes of business failure is insufficient start-up capital. Consequently, you should work closely with your accountant to estimate your cash flow needs.
What are the alternatives in financing a business?
Committing your own funds is often the first financing step. It is certainly the best indicator of how serious you are about your business. Risking your own money gives confidence for others to invest in your business. You may want to consider a partner for additional financing. Banks are an obvious source of funds. Other loan sources include commercial finance companies, venture capital firms, local development companies and life insurance companies. Trade credit, selling stock and equipment leasing offer alternatives to borrowing. Leasing, for example, can be an advantage because it does not tie up your cash. Ask your local SBA office for information about these various sources.
What do I have to do to get a loan?
Initially, the lender will ask three questions:
- How will you use the loan?
- How much do you need to borrow?
- How will you repay the loan?
When you apply for the loan, you must provide projected financial statements and a cohesive, clear business plan which supplies the name of the firm, location, production facilities, legal structure and business goals. A clear description of your experience and management capabilities, as well as the expertise of other key personnel, will also be needed.
What financial statements will I need?
You should prepare and understand two basic financial statements:
- the balance sheet, which is a record of assets, liabilities and capital; and
- the income (profit & loss) statement, a summary of your earnings and expenses over a given period of time.
Does the SBA have business grants?
No. The SBA does not provide grants for the purpose of business start-up or expansion. SBA does offer several loan programs.
Does SBA offer grants for small business startup?
SBA's limited grant offers are generally designed to expand and enhance an existing small business with technical assistance.
SBA's grant programs generally support non-profit organizations, intermediary lending institutions, and state and local governments in an effort to expand and enhance small business technical and financial assistance. (Visit SBA's Grant Resources website.)
How do I know if I qualify as a small business so I can receive SBA assistance?
Approximately 95% of all businesses are eligible for SBA assistance. Size standards vary widely depending upon the industry; however, as a general rule, your business is within SBA size limits if it is in manufacturing or wholesaling with fewer than 100 employees or in retailing or service with annual sales under $5,000.000 To find out more about size standards, call the SBA Office of Size Standards at (202) 205-6618.
What other restrictions are there?
Often, a lender will have restrictions about what industries they want to be involved with.
Do I have to be declined by a bank?
No, you do not have to be turned down by a lender to qualify for a loan guaranteed by the SBA.
What is the interest rate?
Interest rates on SBA guaranty loans are negotiated between the lender and borrower. Rates are variable and may not exceed 2.75 percent over the New York prime rate. Slightly higher interest rates may be charged on loans under $50,000.
What are the loan limits?
The SBA does not set loan minimums. Many lenders may prefer to process loans for under $100,000 under SBA's Low Doc program. The maximum amount the SBA can guaranty is generally $750,000.
How much money do I need to have in order to qualify for an SBA loan?
A borrower's capital contribution generally must be one-fifth to one-third of the total project cost.
How long will it take to get my loan?
A credit decision on a complete loan package is usually made within ten working days. This does not include bank-processing time. This assumes that the borrower and lender have provided ALL of the information necessary to process the loan.
Where can I get the loan application?
SBA loan forms are available from a participating lender, who will also be able to provide information about both the bank and SBA documentation required.
Do I qualify as a small business?
You can quickly determine if you qualify as a "small" business by using the NAICS (North American Industry Classification Codes) or SIC (Standard Industry Classification) Code Lookup Table.
Simply enter your business description or NAICS/SIC code (if known). Then use the resulting table to locate your products/services and see the size standards for your business type.
How do I get certified for special SBA programs?
Certification programs can help you market your business to both large business and government procurements. There are three core certification programs: the Small Disadvantaged Business Program (SDB), the 8(a) Business Development Program, and the HUB Zone Program.
The Small Disadvantaged Business (SDB) Certification Program is designed to treat small companies equitably and empower them to pursue business in both the private and public sector contract arena. Once an SDB is certified, it will be eligible for specific procurement benefits.
The SBA's 8(a) Business Development Program is an initiative that helps small disadvantaged businesses compete in the American economy. Program participation is divided into two stages. The developmental stage is designed to help 8(a) certified firms overcome their economic disadvantage by providing personalized business assistance in expanding their business and fostering meaningful business relationships.
The transitional stage is designed to help program participants become more effective in both the large business and government sector market in dealing with complex business deals and to prepare them for post 8(a) program expansion and development.
The HUBZone Empowerment Contracting Program is designed to stimulate economic development and create jobs in urban and rural communities. The program provides contracting opportunities to small businesses located in, and hiring employees from, Historically Underutilized Business Zones.
How do I buy a business and what help does the SBA website offer?
SBA offers Property for Sale through the administration of its loan programs. Property may be commercial, residential, farm, machinery, equipment, or vacant land.
How do I sell my business?
The SBA offers several publications to specifically help in this area. Also, browse the publications in SBA's Online Library.
