

Ask HN: Using SBA Line Of Credit For Startup Costs? - profgubler

I am looking at different options to finance costs such as bandwidth costs, in the beginning stages. Has anyone gotten an SBA line of credit and how did it work for you. Are the rates good, and would you do it again or go another route.
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amobilebiz
Everyone thinks that an SBA loan is "easier" to get or that any business can
go right out and get one. That is far from the case. The process of getting an
SBA loan is the same with a standard bank loan, except you now have an added
layer with the SBA application. You first must find a bank that is an
authorized SBA lender (not every bank is, but all big banks are). You will
then go through the bank's standard screening process (i.e. credit check, biz
plan review, collateral) and simulataneously have your application submitted
to the SBA for approval. If both the bank and the SBA approve your loan you
get your money from the bank. Also, the bank may approve your loan contingent
on the SBA approval.

SBA loans do require collateral (i.e. home, equipment, etc...). That is why
typically businesses use them to finance equipment or buildings. The SBA
loans, and bank loans for that matter, are not geared towards "web startups".
You will have a much easier time convincing your friends and family to lend
you a few thousand for the next great internet company then you will have
convincing a bank manager.

The above is just my two cents, I have never applied for or received a SBA
loan. I have, however, considered getting one a few years back. I had a
lengthy discussion with my bank manager and decided after it was not worth the
hassle. I just begged friends and family instead and the turnaround time was
much quicker.

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patio11
Bandwidth charges are so small relative to the value of data that unless your
business plan is "host pirated content for poor college students" (hello,
Youtube) you should be able to absorb them easily without needing a loan to do
so.

Hosting/bandwidth expenses next to a business which is actually designed to
charge money for value are chump change. I could quite literally pay mine for
the year with loose change I found around my apartment (I found $250 on Sunday
in my annual cleanup but I'll confess I'm just a wee bit pathological about
it, and helped by the fact that Japan has very common 100 yen coins).

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caseyjdavis
I will post my experiences dealing with the SBA. For the record I have NOT
secured an SBA loan in the past.

For starters, you're going to need a very refined and up-to-date business
plan. This is a no-brainer to most, especially HN readers but my banker told
me I would be surprised about how many people shuffle in for an SBA loan with
no biz plan.

The way the SBA loan works is that you have to find a lender in your area that
will agree to lend you the money after they do a financial screening and feel
you are worth the risk of the loan.

After that, the only involvement the SBA has in the process is they guarantee
the loan that you receive from the bank. They do not disperse any of the
money.

After the bank approves you, and the SBA agrees to back your loan (which can
take several months), then the money is released to you via the bank.

Sadly this process was too lengthly to me so I just resorted to using an Amex
Business card to get me running in the time-frame I needed. :)

That's all I know from the process. I hope this might help some folks in the
future

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mdasen
The question you have to ask yourself is: what makes the bank think my company
is good for the loan?

Banks like lending if they get collateral. For example, buy a house and the
bank gets that house if you don't pay. Buy a dump truck and you don't pay,
they get the dump truck. They can't really take bandwidth.

Part of the problem is that a start-up might try something for 6 months, fail,
and then just declare bankruptcy. Since the shareholders/members of
corporations and LLCs aren't liable for debts, the bank just looses the money.
Would you be willing to be personally liable for the debts by co-signing?

It should also be recognized that banks are wary right now. They've been
burned and are strapped for cash. Unless you can prove that you're safe to
lend to, you won't get it.

In terms of rates, prime + 2.5-6.5% would be normal depending on the risk and
size and such.

Do you really need it? Bandwidth and servers are cheap today unless you're
doing a lot of video serving. Heck, you can even find Content Delivery
Networks that will serve for less than $0.20/GB. If your site really takes off
with traffic, don't worry because you'll have VC banging on your door. If it
doesn't take off, you don't have to worry about bandwidth too much.

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quellhorst
When I researched SBA loans I found they are more willing to give you a loan
for property or equipment than things like marketing costs.

Also, in the environment its much harder to get a loan. Instead I ended up
getting an American Express plum card to help give me some extra time to pay
for expenses. This really helps with cash flow.

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fallentimes
I know nothing about you, but it's really hard to get an SBA line of credit at
a young age even if you can show _revenue_.

Unless you have an established income history, or a profitable business or two
under your belt, I'm not sure if it's worth your time.

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profgubler
For me the real question is, if this is even a reality if you are trying to
run your web based startup. All you hear about is VC, angel funding or
complete bootstraping. But, what if you only a smaller sum of money in regular
intervals, let's say $3 to 5K, because you feel you can repay this easily due
to your business model. I know it would help free up other capital and let you
run your business and not give up ownership to VC.

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pchristensen
I'm also interested in any information about this. I've looked around a little
but all of the sites I've found are way unorganized and hard to read.

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vaksel
the problem is that its next to impossible to get a loan for a web based
startup

