Obama Stimulus: Small Biz Loan Incentives


Jobs may be increasingly hard to find in this economy but, if you’ve always dreamed of working for yourself, now may be the perfect time to think about starting your own business.

In addition to announcing recent incentives to get credit moving, the Obama administration's  American Reinvestment and Recovery Act includes a $375 million dollar pot that will lower lender risk and make it easier for would-be entrepreneurs to fund their dreams.

Small business loans are guaranteed by the SBA to the tune of 85% for loans up to $150,000 and up to 75% for $2 million,” says U.S. Small Business Administration spokesperson, David Hall. “When the provisions on the act are implemented, the SBA will have the ability to raise that guarantee to 90%.”

Who Benefits from Uncle Sam's Backing
While the new loan guarantee is geared toward making it easier for small business owners to get credit, the lenders are also winners.

The federal government will make sure that institutions who lend money to small businesses for land, equipment or other capital incur little risk if the borrower defaults on the loan. So, the bank gets a return of up to 90% on its investment.

However, once the loan becomes the property of the federal government, defaulting business owners won’t get a break from the SBA.

“Once the loan is in default and the SBA pays the lending institution, we will exhaust all reasonable means to collect on the debt,” says Hall. “Including [seizing] real estate assets belonging to the business and any personal property used as collateral to get to loan.”

How to Prepare to Apply for Your SBA Loan
Hall says the details of the plan will be available from his agency “very soon,”

In the meantime, if you’re interested in tapping the government in order to fund your small business, here are some helpful hints you can use to get a loan:

1. Think about your business.  Starting your own business is risky for both the borrower and the lender. Find people who run businesses similar to the one you plan to start and ask them how they got started.

2. Find out where you want to set up shop. You may have the best business idea but, if you’re in the wrong part of town, it won't matter. Scout around for the best place. A cheap real estate, you should also consider how your business will fit into the community.

3. Develop your business plan.  Your lender is not going to be wowed by a great idea unless you can show that it will pay off. So take some time to show how your idea can turn a profit.

Though Hall maintains that some banks may give you an SBA loan if your business plan isn’t perfect, he is adamant that the plan should show how the business will make money as clearly as possible.

The SBA is one place you can turn if you’re looking for a few pointers on how to draft your business plan.

4. Shop around for the best deal. While you may be eligible for an SBA loan, you’re really borrowing money from your lender. So, the bank can set your interest rate and levy any borrower fees against the loan.

While the interest rate on a basic, first-time SBA loan tends to be anywhere from the prime rate plus 2.25% to the prime rate plus 4.75%, you can (and should) always shop around.

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