For many new businesses the first thought of action when it comes to funding your new enterprise is going to your local bank and looking in to sba funding for a startup. The SBA has 3 different programs, the express, 504 and 7a program.. The 504 program is mostly for well established businesses that have profitable business tax returns as well as significant collateral. The 504 is a loan program used primarily for the purchase of real estate and large equipment, so it is a very asset heavy type loan. Since startups don’t typically have profitable business tax returns in the early years and often don’t have large amounts of collateral, often the best or only choice is the 7a loan program. The express is available for businesses that have strong financials, but usually for newer startups that is not possible.
SBA funding for a startup is primarily based on a select group of factors that are broken down in to the following categories: owner credit profile, verifiable personal income, collateral and an overall strong profile. For startups since they don’t have much if any business credit established and since there is very thin business financial records it is obvious that for a lender they need something to hang their hat on in order to issue credit to the new business, and that comes back directly to the business owner’s personal credit. So in general lenders expect no late payments over the last 2 years, established installment and revolving credit history and a decent credit score in order to issue funding for a startup. Verifiable income helps so if you are a new entrepreneur don’t quit your day job until you secure funding, lenders like to see pay stubs from a current w2 salary or job that is consistent to show the owner’s bills are getting paid and has some left over for financing payments. Last but not least is some collateral, lenders love to take a 401k or IRA or some type of collateral like free and clear real estate in case the new business defaults.