8th Nov 2009 by Amelia Timbers
Qualifying for SBA loans depends on what type of loan you are applying for. However, all loans require common credit standards. First, a low debt to equity ratio; the SBA -and private lenders- want to see significant personal investments and cash flow potential that will be able to easily cover the amount of money you are trying to borrow. Second, lenders want to see proof of cash flow and potential earnings. The crucial question: will your business make money? Can you prove it? Do you have clients already? Is there demand for your product you cannot meet without expanding? Failing to be able to provide concrete cashflow is a death knell for borrowers. Remember: cash is king. They will also look at your quick ratio- or ability to cover current debts with current assets. If everything fell apart today, could you cover your debts? You want the answer to be yes. Next, you have to put up collateral: an asset the lender can take if you fail to pay your debt. Try not to put up your house! Try not to borrow until you can AVOID putting your house up for collateral. So, to rehash- lenders, SBA and otherwise, will look at 1. your debt to equity ratio (keep it low! pay credit cards on time) 2. the cerainty of the business's cashflow 3. the quick ratio- how fast you could pay everything off if you had to (make it fast) 4. what you are putting up for collateral (do not put your house up). For more details about the requirements of the specific loan programs, go to http://www.sba.gov/financialassistance/borrowers/guaranteed/.
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