Obtaining an SBA loan guarantee

You may have heard about a government agency called the Small Business Administration (SBA). The SBA exists to help you and other small business owners get a foothold.

Here is a Q&A about the SBA:

What is the mission of the SBA?
Formed in 1953, the SBA’s mission is to “Maintain and strengthen the nation’s economy by aiding, counseling, assisting, and protecting the interests of small businesses and by helping families and businesses recover from national disasters.”

How do I obtain an SBA loan?
You cannot get a loan directly from the SBA because it does not loan money. It provides loan guarantees to banks and other lenders so small business owners can obtain financing more easily.

You might say the SBA acts as a “co-signer” for your loan. Typically, the SBA will guarantee up to 85 percent of a loan, depending on the loan type.

Can chiropractors really get SBA loan guarantees?
Yes. It happens every day. To give you an example, here is information on chiropractors in Iowa who obtained SBA loan guarantees:

• 2005 — 16 chiropractors, for loans ranging from $18,000 to $375,000;
• 2004 — 13 chiropractors, for loans ranging from $18,000 to $275,000; and
• 2003 — 16 chiropractors, for loans ranging from $25,000 to $325,000.

And that’s just Iowa! If you want to see how many chiropractors in your state obtained SBA loan guarantees over the past few years, go to www.sba.gov/loans/businessdetail/busloans05.html.

Do I go to a bank first or to the SBA directly? 
Typically, you will go to several banks to discuss financing for your startup. Some banks will help you fill out the SBA paperwork; others prefer not to get involved with the SBA.

You may also “prequalify” for an SBA guarantee. Find a local Small Business Development Center (SBDC) at a local college or university and ask for its assistance in the prequalification process.

What will I need in order to discuss SBA guarantees?
Like lenders, the SBA requires some information about your personal financial situation and your business. This information includes:

• Your credit report and personal financial statement. The SBA will analyze your credit to determine your credit rating and have you fill out a personal financial statement form. Download the form and begin working on it before you meet with a lender or an SBA representative. Check www.StudentDC.com’s Resources page and click on Financial Preparation for this document.

• Business profile and business plan, with financial statements.

You will need to describe the business and prepare a business plan to back up your loan request.

Financial statements displaying cash flow and income are very important for showing the business’ ability to pay back the loan. For a startup practice, you won’t have past financial data, so you will need to include three year projections for cash flow and income.

• Loan request. You will need to describe the loan type (term loan, line of credit), amount, and purpose of the loan.

• Collateral. Even with an SBA guarantee, you will most likely have to contribute or pledge funds to the business. You’ll need to be prepared to describe your collateral, including any cash you will be providing, property or other assets you will use, and other funds from co-signers or others that will be submitted.

What kinds of SBA loan programs are available?
The most common loan guarantee program for small businesses is the 7(a) loan program. In this program, you apply to a lender for financing and the lender determines if your loan would benefit from an SBA guarantee. The SBA provides a guarantee to the lender (not to your business) that if you default on the loan, the lender will be reimbursed for some portion of its losses.

What is the cost of an SBA guaranteed loan?
Typically, you will pay a guarantee fee of around 2 percent of the guaranteed amount. The lender may impose other fees on the loan to cover the cost of SBA paperwork.

Are there SBA loan programs for women or minorities or other special groups?
Some programs are available, depending on funding available. Check www.StudentDC.com’s Resources page and click on Financial Preparation for information on these programs.

Where else can I obtain help?
Here are two organizations that provide assistance to small business owners through the SBA:

• SCORE is the Service Corps of Retired Executives. Volunteers conduct workshops and provide individual assistance to help prepare business plans and apply for SBA loan guarantees. Score’s Web site is www.score.org.

• Small Business Development Centers (SBDC). SBDC’s are run through local colleges and universities to provide assistance to small business owners. For more information and center locator, visit www.sba.gov/sbdc.