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All about guaranteed business loans

Anyone who starts a small business needs financial support. In the initial phase, businesses often need loans for all their expenses. Here is where a guaranteed business loan would be extremely helpful.

Let us learn more about these guaranteed business loans:

To begin with, let us understand the definition of a guaranteed business loan. A guaranteed business loan is a type of funding provided against some collateral. This means that if the borrower fails to make a payment, the lender does not lose out on the money.

This is also where many business owners misunderstand the term of these loans and assume that their loan applications will not get rejected. However, this is a misunderstanding, as it is the other way round.

Types of guaranteed business loans

There are two broad categories of guaranteed business loans. The first one includes loans that are backed by the Small Business Administration (SBA), and the second ones are those backed by a personal guarantee.

The SBA helps to reduce the risk for loan providers. In most cases, the SBA can secure close to 85% of the loan. The SBA 7(a) loans are extremely popular and can provide as much as USD 5 million. These loans are commonly used to buy material or equipment or even for refinancing a business. Those looking for higher loans can go for the SBA CDC 504 loans, as these loans can give you amounts of up to USD 20 million. However, SBA fees are charged for both these options.

SBA offers special funding to help small businesses in the time of need as well. For those who do not need such large business loan amounts, there is always the option of micro-loans. The microloans have no fees attached.

Qualifying factors for guaranteed business loans

Certain criteria need to be fulfilled to take a business loan. Let us take a look at these:

An excellent credit score of at least 650
A long-standing business
Personal income and liquidity
Type of guarantee offered, for instance, real estate

Process of application

To make the process of submitting your loan application for an SBA loan a smooth one, you need to have certain documents. Do note that applying for an SBA loan is a time-consuming process; however, the benefits that you get from this loan are worth the wait. Some of the documents that you need to submit for your loan include:

Business model plan
Details of personal savings
Identity such as driver’s license
Personal and professional tax returns

You will also have to explain how you plan on using your funds if and when you get the loan. If you are unsure about your decision, speak to a financial advisor to make an informed decision.

Disclaimer:

The information available on this website is a compilation of research, available data, expert advice, and statistics. However, the information in the articles may vary depending on what specific individuals or financial institutions will have to offer. The information on the website may not remain relevant due to changing financial scenarios; and so, we would like to inform readers that we are not accountable for varying opinions or inaccuracies. The ideas and suggestions covered on the website are solely those of the website teams, and it is recommended that advice from a financial professional be considered before making any decisions.