Many thriving businesses hit a point where they need to borrow money. Your business could be growing quickly but if all of its earnings are being reinvested in the company, you'll have little left to pay for the company's growth and expansion, like upgraded equipment, more raw materials, or new technology.
That's when a business loan or line of credit can make a lot of sense.
However, securing a small business loan or line of credit can prove difficult, even for a profitable business. Fortunately, a credit facility guaranteed U.S. Small Business Administration (SBA) can help be the difference-maker in getting the money your business needs.
SBA credit facilities are originated, underwritten and funded by various lenders, including PNC. The SBA guaranties a portion of the credit facility - this means if the borrower defaults, the lender may seek payment from the SBA under the SBA guaranty. This is called an "SBA guaranty".
To be considered, start at a bank. Your present bank may be the best place to apply for a credit facility because they're likely already familiar with your company, but that doesn't mean you shouldn't also check out other banks in your area that may want your business. Banks may suggest that you explore various types of credit products, including an SBA guaranteed loan, to best fit your financial needs.
There are several types of SBA credit facilities you can apply for, so consider which is the best fit for your needs and situation:
- SBA Express Loan. These credit facilities are for general business purposes, including inventory purchases, working capital, real estate, equipment and expansion. You'll get an answer through a more streamlined process than a conventional facility, but the maximum loan amount is $350,000. These credit facilities offer flexibility depending on how you intend to use the money. An Express Line of Credit can be used for short-term cashflow needs while Express Term Loans offer more predictable monthly payments on equipment or real estate.
- SBA 7(a) Loan. These business credit facilities allow a lot of flexibility and can be made for up to $5 million. The money you receive can be used for multiple purposes, including real estate, expansion, and even acquiring other businesses.
- SBA 504 Loan. These credit facilities are specifically for the purchase or renovation of land or buildings, or the purchase of equipment.
- Disaster loan. These credit facilities are made available to businesses affected by natural disasters. If you are located within an SBA-declared disaster zone and are affected by a disaster, you may qualify for a credit facility to help repair or rebuild your business.
Once you determine which type of credit facility to apply for, it's time to start preparing your loan application. An application is much more than a couple of pages filled in with your signature—it's a marketing proposal that explains why you need the money, how you'll use it, and how you know you can pay it back (based on how well the business is doing).
Your loan application should include, at a minimum:
- A business plan. Exactly how do you plan to continue building and growing your business and how will you use the money? How will it help your company thrive? Can you show that your business is making money and that it can make more money if you had the credit facility?
- Credit histories. You'll need to give permission for credit histories to be run for you (personally) and your company.
- Tax records. You'll need to provide up to the last three years of tax records for you and your company.
- Financial statement. If you didn't include three years of financial statements in your business plan, you'll need to prepare them or have them prepared by an accountant for the bank to review.
- Personal guarantees. Each entity or individual who holds a 20% or more interest in the borrower must be willing to sign a personal guarantee for the credit facility, meaning that even if the business fails, you are still personally responsible to repay the credit facility.
- Anything else the bank requests. This might include additional SBA-specific forms, for example.
Applying for a credit facility is time-consuming but the potential payoff can be life-changing for your business. Imagine what your business will be able to do once you have that brand new piece of equipment or can stock up on that key ingredient for your product.