One of the biggest challenges of getting a small business off the ground or taking the next steps toward growth is getting financed. Sure, business owners can turn to banks and to a growing number of alternative lenders, but those financial products often come saddled with a time-consuming and bewildering application process, onerous terms, exorbitant interest rates—upwards of 40 percent in many cases—or all three.
One solution to that pervasive problem: SmartBiz, a provider of Small Business Administration (SBA) loans.
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SmartBiz's tagline is "SBA loans made easy," and it fits the bill according to Marc Prosser, co-founder of online publisher Fit Small Business. In fact, after evaluating the small business loan market, Fit Small Business named SmartBiz the best SBA loan provider for small businesses.
Prosser and his crew also recently secured a $350,000 SBA loan to help fund an expansion and to hire more writers, a process that took less than a month. Apart from the quick turnaround, SmartBiz delivered where other lenders fall short, he said.
Securing the Coveted SBA Loan
There are plenty of loan products from banks and alternative lenders, but there's a good reason for small business owners to set their sights on an SBA loan, according to Prosser.
"The SBA loan is a 10-year loan with no prepayment penalty and a super-low interest rate," he told Small Business Computing. Depending on the type of SBA loan, borrowers can pay interest rates of significantly less than 10 percent, which translates into lower monthly payments and more money that entrepreneurs can pump back into their companies.
For example, SmartBiz currently advertises interest rates of 6.25 percent to 7.25 percent on loans from $30,000 to $350,000. Payments can go as low as $1,123 per month on a ten-year, $100,000 loan. Fees are 4 percent, plus closing costs. Loans of more than $151,000 are also subject to a 2.25-percent SBA guarantee fee.
"We would probably be paying double the interest rate for a 3-year loan" offered by other lenders, said Prosser, despite operating a debt-free business with positive cash flow. Although several thousand banks provide SBA loans, which are essentially subsidized by the SBA and lower the risk to banks, few offer them in substantial numbers. "They're not interested in making an SBA loan to small businesses," he said.
And when they do make loans, it's generally to conventional businesses like veterinarians or franchise companies. Most banks aren't comfortable extending loans to online businesses like Prosser's, where revenue sometimes arrives months after his site's content has gathered momentum on search engines and builds traffic.
Banks typically balk at giving long-term loans to online startups or other types of companies with atypical business models. "There's no way a bank is going to give a business like mine a loan for more than three years," added Prosser. SmartBiz did.
SBA Loans for Today's Small Businesses
To help level the playing field for small business borrowers, San Francisco-based SmartBiz built itself around SBA loans. With a more modern underwriting technology platform, the company has created a loan marketplace that streamlines the application process and drastically shortens the time it takes to get approved and funded.
On paperwork alone, Prosser's company spent approximately 20 hours filling out forms and gathering the proper documentation. It's still a substantial time investment, but he estimates that SmartBiz shaved 40 hours off the process.
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While SmartBiz makes it faster and easier to secure an SBA loan, Prosser cautions that applicants ought to be able to verify that their business is in good health and have their financial affairs in order. There's "no magical money" for poorly-run businesses—from the SBA or elsewhere—he said. Borrowers should be able to answer honestly and affirmatively to the question, "Would you lend money to yourself?"
That said, there's "no reason not to see if you prequalify," said Prosser. SmartBiz will perform a "soft credit pull" that doesn't affect the credit score of prospective borrowers. Indeed, given the uphill battle of trying to secure affordable small business loans, he sees "no reason not to apply for an SBA loan first," adding that SmartBiz's platform makes it more attainable and cost-effective than ever for entrepreneurs that qualify.
Pedro Hernandez is a contributing editor at Small Business Computing. Follow him on Twitter @ecoINSITE.
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