Although there are many reasons a company should consider an SBA loan, there are 5 critical advantages to an SBA loan which should be considered when applying for a loan to expand or refinance your business or acquire a new one. SBA loans are intended to improve cash flow for small businesses and these factors show some of the ways they can do so.
- Lower cash injection – SBA loans secured by real estate are eligible to be financed up to 90% of the cost. SBA loans not secured by real estate are limited to 80% of cost. Business acquisitions, however, are limited to 75%, which is generally mitigated by the seller providing a portion of the injection requirement. These injection requirements are generally far lower than a typical commercial loan.
- Lower payments due to longer amortization – Loans to acquire, improve or refinance real estate may be amortized up to 25 years. Loans limited to non-real estate are generally limited to 10 years. Longer useful life equipment can be extended up to 15 years.
- SBA loans do not have to be fully collateralized – As long as the borrower provides a full personal guarantee of the loan and pledges “all available” business (and personal, if necessary) assets, a lender may proceed with an SBA loan even if not fully secured.
- No loan covenants – Your business does not need to meet arbitrary goals or numbers to keep your loan. The only true default will occur with non-payment. An SBA loan, otherwise, cannot be called even if business is slow or underperforming for a period of time.
- Never a balloon payment– The SBA loan is fully amortized and cannot include any balloon payment. Simply put, the loan is yours until you pay it off.
The SBA loan is not just for those who have been unable to get a loan elsewhere. Other than some size standards which may limit a larger company from eligibility, most companies with reasonable historical cash flow will be eligible to take advantage of the excellent advantages.
The goal is to improve cash flow through longer terms and lower cash injections, thus providing the borrower with more flexibility and the wherewithal to concentrate on operating his business.
A lender with a dedicated SBA division will have the ability to guide you through the process and help you on the way to improved cash flow.
About the author:
Paul Pickhardt is the SBA Manufacturing Lending Manager at United Community Bank. He and his wife have lived in the Greenville area for nearly 15 years and have two adult children. Pickhardt has been involved with many community organizations, including the Greenville Area Chamber of Commerce, Upstate SCORE and the Small Business Development Center (SBDC). Pickhardt is also a Vietnam Veteran who honorably served his country as a Captain in the U.S. Army.