As predicted, the mortgage crisis that has affected the United States is hurting many banks across the country. It only stands to reason that banks will need to tighten their belts wherever they can, including Small Business Administration Loan distribution.
Many banks are less risk inclined than they used to be when considering giving out loans. One of the reasons that Small Business Administration backed loans are on the decline is because small businesses are worried about expansion in today’s economy. The resulting standards for obtaining a loan are becoming more difficult for even solvent businesses.
Loans to businesses are still available, but banks are asking for more collateral besides the inventory. Those businesses requesting loans could experience tougher terms being set by banks. Banks will likely request more documentation of business finances and they will pay particular attention to credit reports. As a result, there will be higher premiums charged for risky loans and higher costs of credit lines. Businesses could experience difficulties in financing when they try to purchase another business or buy additional property.
Many small business owners have tapped into their home equity as a means of obtaining lines of credit or have even used their home equity as collateral. Due to the reduction of real estate values, it will be difficult to use this as an option in the near future.
If you are interested in obtaining a Small Business Administration Loan, consider the following before applying:
Check your credit to make sure it is clear of problems.
Research the industry that your business is in before applying for a loan.
If you don’t have experience in the industry, consider taking on a partner or manager who is experienced.
Do financial projections. Know what the cost of the expenses, inventory and expected revenue are.
