For business owners considering SBA financing as a way to either purchase or refinance a commercial property for their business, there are many distinct benefits over comparable conventional bank financing with the SBA programs. The main benefits of SBA financing include, higher loan to value, reliability of closing, and good loan programs.
SBA Loan Financing – Higher Loan to Value
90% financing via the SBA loan program is common on purchases whether via the SAB 7a program or the 504 program. 85% financing on refinances is common on the 7a program as well. Comparable conventional loans are for the most part capped at 65 -70% of purchases and 55% – 60% on refinances.
For most small businesses keeping as much cash in the business, and not tying it up in there building is critical. Reserve are absolutely needed to help weather the ups and downs of day to day business. Running out of cash is one of the leading causes of failed businesses.
SBA Loan Financing – Reliability of Closing
Banks are very skittish these days. They underwrite files with more of an attitude of “how can we decline the file” rather than “how can we get this done.” You probably have friends (or you may have lived through this yourself) with horror stories of being tied up with a convention bank for months, waiting for them to make some kind of decision. Being strung along, month after month.
The officer at the bank maybe telling you some kind of issue they are trying to figure out or get over, but for the most part the real issue is there is something going on internally with the bank. Perhaps they have a liquidity issues, have lost their confidence in taking more risk, etc.
The point is that the backing that the SBA provides for banks, makes them much more willing to lend. 90% of the loan (on SBA 7a’s) to guaranteed by the government. This additional guarantee is often the difference between a funded loan or a drawn out decline. SBA financing is easily the most reliable form of financing in the business today for small business owners.
SBA Financing – Good Terms
The SBA 504 program offers the longest fixed periods in the market as well as very low rates on purchase transactions. For example, as of this writing the SBA piece on the 504 is now at 5.14%, fixed for 20 years… This is the lowest it has ever been. And again this is at 90% financing.
Longer amortization periods also equal better cash flow for businesses. Most conventional banks, if they are really willing to lend, won’t go over 20 years. Many are capped at 15 year schedules. The SBA 7a allows for 25 years and also enables the borrower to add working capital, consolidate debt and perform renovations to their property.