Lenders take significant risks on you as a small start-up business, and want as much assurance as possible they are making a smart decision. Thus, your job in preparing a loan application is to address their concerns as well as possible. You can never be too prepared or too thorough. The largest government loan program is the federal Small Business Administration (SBA), which backs or guarantees loans in case of default, making banks and other lenders more willing to extend loans. However, many locales operate small business incubators, which help subsidize new businesses and extend micro loans. Both programs require similar application information.
Research your costs and expenses. To effectively apply for a loan, you will need hard and well-researched figures on why you are requesting a given amount and how you will use the loan.
Prepare a thorough and detailed business plan. Explain your business idea very clearly and include detailed accounts of how you will structure your business, how it will generate revenue, when it can pay off the loan and how the money will be spent. Emphasize the success or return the funds will bring. The SBA and Minority Business Development Agency (MBDA) both have programs to help entrepreneurs develop strong business plans. It can be helpful to use a business plan developed with SBA assistance when applying for an SBA loan.
Speak with an SBA representative about federal loan programs. Learn which ones apply best to your business and take advantage of any that address your industry or circumstances. There are loans which prioritize agriculture, rural business development and minority businesses.
Obtain an SBA loan application and complete it. Get help from SBA officials, if necessary. The SBA and MBDA both offer assistance in the application process.
Prepare the supplemental forms and attachments for your SBA loan. These include Form 4, Application for Business Loan; Form 4-a, Schedule of Collateral — Schedule A; Form 413, Personal Financial Statement; Form 912, Statement of Personal History; Form 1624, Certification Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion Lower Tier Covered Transactions; and Form 1846, Statement Regarding Lobbying.
Write an executive summary and cover letter summarizing your operation and reasons for requesting the loan. The SBA also requires a business profile. Your business plan will provide most of this information and can even act as the business profile.
Have your application reviewed and proofed. Take advantage of SBA, MBDA and private nonprofit organization mentorship programs that will do this. Being as prepared as possible will make a huge difference. After this, submit your application.
Contact and apply to county and city business incubators. States such as California distribute their business development funds to counties and nonprofits to implement incubator programs. Each incubator has different application requirements for loans and participation in incubation facilities. However, for counties such as Muskingum County, Ohio and Centre County, Pennsylvania, your application preparation for an SBA loan is more than sufficient for their applications.
- Most government loan money is distributed on the federal level and run in public-private partnerships.