Let’s get right to the point: Yes, starting a business during the pandemic might come with extra challenges.
But, it’s not impossible. In fact, many of the changes brought on by the pandemic have sparked a host of new business opportunities. If your business idea meets a current need, it might even be a great time to step into entrepreneurship.
If you’re ready to take your business from concept to reality, one of the first challenges to tackle is how to fund the start-up costs of your business. The truth is, it can be harder to get a business loan during an economic recession. This is one of several key reasons that many start-up businesses find value in a loan backed by the Small Business Administration (SBA).
Here are some of the reasons you may want to consider SBA financing for your new business.
It makes capital more accessible.
Like other types of loans, you can obtain an SBA loan from a participating bank like LSB. But with an SBA loan, the SBA provides the lender with a loan guarantee, which minimizes risk. Start-up businesses are viewed as riskier because there isn’t an established history of success. An SBA guarantee offsets start-up risk and makes the lender more comfortable extending credit. Businesses can access up to $5 million through the SBA 7(a) loan program.
You retain complete control of your company.
Raising money through venture capital often comes in exchange for partial ownership or decision-making authority in the company. With an SBA loan, you retain control of your business decisions and operations, which might be more appealing if you have a strong vision of the way you want to run your company.
You can get a loan for working capital expenses.
Most conventional loans are secured with collateral. This can make getting a loan for start-up costs such as leasing space, raw materials, supplies, salaries, marketing or legal fees very difficult because there aren’t physical assets to secure the loan. It is possible to finance these expenses with an SBA loan because the guarantee stands-in for the collateral, again reducing risk for the lender.
Debt repayment is often more manageable.
SBA loans have longer terms than conventional business loans – up to 10 years for working capital or equipment and 25 years for real estate. Repaying over a longer period of time lowers the monthly payments, which many businesses find beneficial for maintaining good cash flow. If you decide to pre-pay your SBA loan, there are no penalties for loans with less than 15-year terms.
It’s less risky than fast-capital.
There are many options today to obtain unsecured loans quickly online. In certain circumstances, these may be beneficial, but it’s important to understand the terms and conditions. In exchange for fast funding, many of these loans carry high interest and fees and they may require access to your financial accounts for automatic withdrawals. SBA loans were created to foster not only the creation of businesses but to support their long-term success. The SBA sets maximum rates that lenders can charge. During the economic crisis created by the coronavirus pandemic, the SBA offered current and new SBA loan-holders payment relief and payment deferral to preserve their financial health.
Not every bank offers or is experienced with SBA loans – but the small business lending team is knowledgeable and prepared to help! If you’re ready to take the next step toward your goal of starting a business, contact our team for comprehensive support of all your financial needs.
