Nearly half of all new businesses actually don't make it past their fifth anniversary, according to the
And one of the most important areas on which to focus from the start involves finance. With 28 million small businesses currently operating in the country, many of them are seeking SBA loans to provide working capital, according to recent U.S. Bureau of Labor and Statistics research.
These loans are attractive due to their low interest rates and long repayment terms that result in low monthly payments. However, there are several mistakes that companies often make in the application process that can prevent them from receiving capital they need.
With this in mind, here are three pitfalls for SMB owners to look out for when seeking SBA loans for their companies:
1. Neglecting to check the allowable use of funds. Lenders each have different rules on their allowable use of funds. Small businesses need to directly ask their lender upfront regarding their organization’s specific requirements. For example, some lenders may not allow debt refinancing for loans secured by real estate. And other lenders might not let you use funds for business acquisition, or starting up a company. If your lender doesn't allow your specific use of proceeds, find another one.
2. Not having sufficient cash flow to make monthly loan payments. Providers of SBA loans will check your ability to make your loan payments. Using business and personal tax returns and debt schedules, they will calculate both your business and combined business and personal ability to repay your loan. If you can't demonstrate an ability to make loan payments, consider applying for an amount you can afford.
3. Being disorganized. Small businesses can avoid obstacles in the application process by ensuring all of their paperwork is organized, up-to-date and accurate. This includes documents about the origins of the business, insurance, accounting and tax records, along with anything else that demonstrates the current state of the organization. Procedures and comprehensive recordkeeping are crucial to ensure a smooth application process.
In order to set a small business up for success, it's vital that owners and entrepreneurs avoid these common mistakes. There are plenty of resources and organizations dedicated to helping small businesses get off the ground, like your local Small Business Development Center (www.sbdc.org), so make sure to take the time to seek them out.
Evan Singer is a seasoned executive with broad experience in financial services and consumer industries. He is the General Manager for SmartBiz, the small business division at Better Finance, a venture backed technology based finance company.
