The SBA stands for Small Business Administration. It is a U.S.
government agency that works to preserve and help small businesses.
They make guaranteed loans and provide counseling services and
Executive mentoring programs for small business owners. They are able
to make loans at a better rate and terms than conventional lenders can.
What are guaranteed loans?
Guaranteed loans through the SBA are just that. They are guaranteed
that the SBA will take care of them in the event that the borrower
cannot repay the loan. They are liable for the entire amount so they
are not just getting a write-off of their debt owed, but they will
still have to repay this money to the lender. The SBA encourages
lenders to provide loans to the small business owners who are in need
of start-up capital, seed money, investment money, or other loans. They
also have investment firms that help by providing capital and start up
money to these small businesses.
What other services does SBA provide?
The SBA also provided emergency services in the event of a natural
disaster such as Hurricane Katrina in Louisiana. They will deploy teams
of expert advisors there to assist businesses in recovery loans. They
also offer business counseling and guidance regarding laws and
regulations.l Also, they offer an extensive library online on their
website that is available for public use.
What are the Benefits of a Guaranteed SBA Loan?
There are numerous benefits of going through the SBA for a loan. They
can offer you a serious advantage by allowing you to use this loan
program.
Lower Overall Down Payment:
Normally, SBA loans are provided with only about 20% down for the total
cost of the project. This can drastically lower your out-of-pocket
expenses and also increases the rate of return on the investment for
you. Conventional lenders typically ask for at least 30% down on the
loan and do not finance so-called soft costs of the loan like the SBA
lenders will.
No "demand" clauses:
This is a very important benefit to the borrower. Many conventional
loans do contain a "payment on demand" clause that means you must pay
immediately if they call in your loan. The SBA lenders will not do
this. They do not contain demand clauses in their contracts.
No early maturity payment:
With SBA loans, you can be worry free that you will not have to go back
in a few years and refinance your loan because it has an early maturity
date. This gives you peace of mind knowing this is one less thing to
worry about.
Easy 5-3-1 prepayment penalties:
This is only if paying more than 25% of the loan in one year or if you
pay the whole thing off early. You can pay it off in as short a time as
4 years without this penalty for prepayment.
One-time closing:
In this type of loan, you will only have one closing so you will have
reduced closing costs not to mention having to take off to go sign
papers again. You will also work with only one lender so you do not
have to go several places and deal with a lot of people in closing.
SBA-guaranteed loans are fully assumable:
They can be taken over with one simple application from the person who wishes to assume the loan payments.
Appraisals are done on a "going concern" basis rather than a "physical
assets only" basis involving your land, equipment and building. This is
one of the reasons why you are able to obtain a lower cost loan through
the SBA lenders.
The lender does not require deposits:
SBA lenders are typically less concerned about you having deposits with them than the commercial lenders would be.
No additional collateral required:
The lender will not ask you to maintain additional collateral such as a
Certificate of Deposit with them or any other cash equal.
No minimum or maximum financial ratios:
The lender will not ask you to maintain these minimum or maximum financial ratios like some of the other lenders would.
7a Loans consider ALL your Costs to be part of the Total Project Cost:
This amount is used to figure out how much your down payment will be.
They normally do not consider the closing costs or working capital to
be part of the total project cost. The operating cash and the loan
closing costs are considered a part of the total with an SBA 7a loan.
It is not just your purchase price and not just the hard costs if you
are building some buildings for your business. You can make the lowest
overall cash down payment for your new business this way.
If you go through a different lender than your normal bank, you will still have that bank's loan available to you:
By working through an SBA guaranteed lender you will be able to
preserve this additional amount of loan availability through your local
lender. If you are in another line of business in addition to the
primary one, you might be able to borrow from them for the new one.
Altogether, there are many benefits of taking out an SBA loan. They are
there for you if you need their advice and help and they are most
willing to help you get your business off the ground.
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