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What are the key elements to include in a business plan to increase approval chances for SBA 7(a) and Express loans?
SBA 7(a) and Express loans require a well-structured business plan, which increases approval chances by 30%.
The business plan should include a clear description of the product or service, target market, and competitive analysis.
Financial projections are essential, and they should consist of historical financial data, projected income statements, cash flow statements, and balance sheets.
SBA loans prefer collateral, so the business plan must detail the assets the business owns or will acquire.
Personal credit scores of the business owners play a significant role in loan approval; hence, the business plan should highlight the creditworthiness of the owners.
SBA Express loans offer expedited processing, typically within 36 hours, but they have a lower maximum loan amount of $500,000.
The business must demonstrate the ability to repay the loan, so the business plan should include a detailed repayment strategy tied to cash flow projections.
SBA 7(a) loans may have longer repayment terms, up to 25 years for real estate, compared to traditional bank loans, which average five to seven years.
The SBA requires that the borrower invest equity in the business, typically 10-20% of the total project costs.
For SBA 7(a) loans, the SBA guarantees a portion of the loan, reducing the risk for the lender, but the borrower pays a guarantee fee.
To qualify for an SBA Express loan, a business must operate for profit, be physically located in the U.S., and have reasonable owner equity investment and good character.
SBA loans, compared to traditional bank loans, are typically accessed by businesses that struggle to obtain traditional financing due to insufficient collateral, poor credit, or limited operating history.
SBA loans require the completion of specific documentation, such as the SBA's loan application (SBA Form 1919), personal financial statements (SBA Form 413), and a detailed business plan.
The SBA's Preferred Lender Program (PLP) allows select lenders to approve loans without SBA review, expediting the loan process.
Lenders can charge a packaging fee, typically 1-3% of the loan amount, for their time and effort in preparing the SBA loan application.
The SBA requires a borrower to have skin in the game; hence, the business plan should elaborate on the borrower's contribution, whether in cash or property, towards the business.
SBA 7(a) loans can be used for various purposes, such as starting a business, purchasing real estate, construction, renovations, and working capital.
For SBA Express loans, the interest rate is usually set as Prime + 4.75% to 6.5%, while SBA 7(a) loans have a variable interest rate tied to the prime rate.
SBA's Certified Development Companies (CDC) can also provide 7(a) loans known as CDC/504 loans, which focus on financing fixed assets such as real estate or equipment, with a maximum loan amount of $5 million.
The CDC/504 loan requires a down payment of at least 10% from the borrower, while the SBA guarantees up to 40% of the project cost, with a participating lender providing the balance.
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