Having equity invested in your company will help you qualify for a Small Business Administration Loan.
It is important when determining if you qualify for a SBA Loan to understand the basic credit factors that will apply to your loan request. Lenders will review and analyze your application and then decide if they need to request a guaranty from the SBA. Each application must have positive credit information in order to be approved.
One of the components required to obtain a good credit standing with the SBA is a reasonable amount of equity investment for each business. This insures that the business can operate soundly when the loan is integrated into the business. Banking institutions will carefully examine the debt-to-worth ratio of the applicant. The SBA will want to know how much worth the business owners have invested in the company including cash and assets that are directly applicable to the business Existing businesses will be required to provided current financial statements in order to determine their credit worthiness. Strong equity with a low debt ratio will help the business remain resilient and help secure a SBA loan. For a new start-up business, the value of invested assets can be evaluated as long as there is documentation of appraisals or invoices. Low equity problems, in comparison to the loan requested, can still be overcome with other positive credit factors.
Consideration of the company’s debt level is important to analyze because the stronger the projected profits, cash and equity on hand, the more likely that the loan will be approved. Businesses with high debt, low equity and unsupported projections are very likely to face a denial in the loan process.
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