Q: I am recently disabled and unable to work. I have been looking into the possibility of starting a business of my own. The Small Business Administration seems a good way to go to get the money for such a venture. I just wanted to know if you agree. Thank you.
Albert

Well, you are definitely on the right track, although just a tad off. Many people think that the SBA makes great loans for small businesses. That is almost correct. The fact is, the SBA guarantees those great loans, but it does not make them itself.

The actual loans are made by independent banks and other lenders. Lenders who participate in SBA loan programs are more apt to make loans to small businesses because the loans are guaranteed by the federal government. As such, these loans are usually easier for the aspiring small businessperson to get because lenders relax their strict loan requirements. More "risky" loans are made via SBA loan guarantees.

That is good news for the new entrepreneur.

But that is not the only way the SBA can help you financially. You should also know about Small Business Investment Companies (SBIC). SBICs are independent, private, venture capital firms. Because SBICs are licensed by the SBA, they are able to borrow money from the government at very favorable rates, and, as they say, "pass the savings on to you!"

Next up is the SBA Surety Bond Guarantee (SBG) Program. This program guarantees bonds — performance, bid, surety, and contracting bonds — for small and minority contractors up to $2 million.

So yes, there are several ways the SBA can help finance a new business. But even though the requirements are more flexible for these SBA-backed loans, there are still hoops to jump through. Typically, you will need to show the lender the following in your loan package:

•Loan: You will need to explain how much you want to borrow, what it will be used for, and why you need it;

•Collateral: You will need to explain what sort of collateral you are offering to secure the loan;

•Business financials: You will need to show a complete set of financial statements: Profit and loss statement, balance sheets, cash flow projections, etc. For a new business, you will need to show projected financial statements;

•Personal financials: Anyone who will own 20% or more of the business will need to show his or her personal financial statement: Assets, liabilities, tax returns, and so forth;

•Ability to repay: You loan package must explain how you will be able to repay this loan. The loan officer will consider your projected cash flow, profit potential, the background of the officers, collateral, and other related factors;

•Business profile: Of course, you will need to explain what the business is (or will be), sales (or projected sales), employees, location, and so on.

A word of caution: You may be tempted to "over-inflate" your profit potential and financial statements thinking that that may persuade the loan officer to make the loan. This is unwise and unnecessary for two reasons: 1) SBA guaranteed loans are designed to give new businesses a break, so getting the loan is already easier, and 2) loan officers will be able to see through inflated numbers.

To get a list of SBA lenders in your area, check in with your local SBA office: http://www.sba.gov/regions/states.html.

Today's tip: There are a lot of varying statistics out there regarding the success and failure rates of franchises, so, as I always suggest when writing about choosing a franchise,do your homework. The best thing you can do is talk to current and former franchisees of the system.