A (Two) Case Study of SBA Loans

woman opening a small business

If you can’t get a bank loan, is an SBA (Small Business Administration) loan the answer?

Five years ago, Kristin Heaton Peabody needed $236,000 to start Hiatus Spa, while Lauren Milligan needed $25,000 to boost her eight-year-old business, ResuMAYDAY.

Both applied for SBA loans. They each submitted a business plan, three years of P&Ls and personal and federal income tax returns, and more.

Kristin’s loan required a 20% capital injection, for which she cashed out $30,000 from her 401K; her partners contributed another $30,000. But, the longer-term financing and smaller down payments made it worthwhile. Last year, they took out another SBA loan to expand from Dallas to Austin.

Lauren, however, turned down her SBA loan (“prime plus one or two points” plus monthly processing fees) and opted instead for a second home equity line of credit (prime with no extra points and a tax deduction).

Not everyone has home equity, but Lauren encourages business owners to look into other options, like personal loans, before going the SBA route. “When they’re your only solution it’s great,” she says. “But you may find other routes that will be simpler and less expensive.”

Take the money and run. Have you looked into business or SBA loans?

Originally published on May 29th, 2012

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