The Basics of a Small Business Loan

You have written a proposal to start your own photography business and you know what you need to do to get started. There is one problem however, you need money. The federal government has loans that are given out to those individuals who seek to open their own business.

The U.S. Small Business Administration is an independent agency of the Executive Branch of the Federal government. They have four primary responsibilities to the American small businesses. They are advocacy, management, procurement, and financial assistance. Obviously, if you are seeking a small business loan, you will be using the financial assistance portion of the U.S. Small Business Administration.

Financial assistance is provided primarily through investment programs which are handled by the SBA. There are three separate but equally important loan programs associated with the SBA. The SBA sets the guidelines for the loans while the SBA's partners such as lenders, community development organizations and micro lending institutions provides the actual loans to small businesses. The SBA then backs these loans with a guarantee that will eliminate some of the risk to the lending partners.

How do you become eligible for a small business loan? First, every applicant that applies must have some positive credit factors. To get approval, the applicant must have some positive credit factors. The lenders will look at these credit factors and determine whether to internally approve the loan, seek a guarantee from the SBA, or decline your application altogether. Business loan applicants must also have a reasonable amount of funds invested into the business. This ensures that the business will operate on a sound basis when the applicant's funds are combined with the funds from the loan. There will also be an examination of the debt-worth ratio of the applicant to see how much money is being asked from the lenders in relation to how much the owner(s) have invested. Owners may either invest assets or cash which can be used to acquire assets for the business.