You may have heard the term SBA loan but haven’t a clue what it means. Don’t worry, you’re not alone.
Hello, my name is Ryan Smith, Principal Broker and Founder of ThinkSBA. I help business owners and entrepreneurs obtain the capital they need to grow or start their business.
Truth About The SBA
An SBA loan is a misnomer because it’s not a loan at all. The SBA, or Small Business Administration, is a Federal Guarantee Program founded over 50 years ago that incentivizes banks to make loans to businesses who would otherwise not qualify for various reasons, such as, time in business, experience, personal liquidity, ability to repay, compromised credit history etc.
The SBA incentivizes partner banks by guaranteeing up to 75% of the principal loan amount meaning the bank’s risk in case of default is only 25% of the outstanding principal loan balance at the time of default.
There are two primary SBA loan programs, the 7(a) and 504.
SBA 7(a) Guaranteed Loans
The SBA 7(a) guarantee loan program is used for the purpose of funding working capital term loans, equipment purchases, partner-buy outs, business and/or franchise acquisitions and owner occupied commercial real estate purchases.
These loans may be amortized up to 10 years with a fixed or floating interest rate and no prepayment penalty. That’s important to remember. No prepayment penalty means you may repay the loan as quickly as desired without the risk of a monetary penalty. Conventional loans aren’t so forgiving.
SBA 504 Guaranteed Loans
The SBA 504 guarantee loan program is primarily for the purpose of owner-occupied real estate purchases. It’s advantage over a conventional real estate mortgage is the ability to qualify with only a 10% cash injection on multi-purpose properties, enabling business owners to acquire an appreciating fixed asset without depleting precious cash reserves.
Another feature of the 504 is that the credit facility is comprised of two loans; one from a conventional bank, who holds the first trust deed up to 50% of the appraised value and a the second from a local community development corporation or CDC that holds a second trust deed on the remaining 40%.
Each of the SBA 504 loans may be amortized up to 25 years with a fixed interest for the life of the loan.
Time To Fund SBA Loan
SBA loans may take up to 60 days from application to funding. And believe it or not the time it takes to close your loan is largely dependent upon your responsiveness to the banks questions and requests for financial statements.
If you have questions or are ready to start the loan application process today, click here or just give me a call at 858-762-2774.