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 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.
Copyright Rebecca Hubbard | All Rights Reserved
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