“If the SBA is one of the most successful legislative programs, why aren’t you getting
your share?” |
By: Melanie Brown, Senior Vice President, SBA Lending, Security Bank of North Metro |
The SBA is an independent agency created by Congress to assist in the commencement,
expansion, or growth of a business. This year alone the government will guaranty
$17 Billion dollars in loans with a maximum loan size under the SBA 7(a) program
of $2 Million with a guaranty of 75% or $1.5 Million. The 7(a) program can be used
to finance a real estate purchase or refinance, equipment and working capital. The
SBA 504 program is available for the purchase of real estate and some equipment
and loans can be obtained up to approximately $4.5 Million and up to $10 million
for some manufacturers.
|
SBA loans are not made by the SBA but by participating lenders. Lenders ideally
look for established, profitable companies needing to expand their business. Start
up financing is available for some business concepts but generally when the lender
has to rely on projections for repayment, the credit criteria will be stricter.
|
Many times, people ask me “What is the benefit of the SBA program?” The major benefit
the program offers is extended terms as compared to conventional financing and less
equity required from the borrower.
|
|
Example: |
Conventional Term
|
SBA Term |
|
Real Estate
|
15-20 years |
20-25 years |
|
Equipment |
5 years |
10 years |
|
Working Capital |
7 years |
2 years |
|
Therefore, by extending the term of the loan, the cash flow improves. Someone who
might not qualify for a conventional loan might qualify with SBA terms. In addition,
existing businesses with historical cash flow can purchase real estate for as little
as 10% down. Most business owners are not even aware that they can convert from
being a tenant to land owner for 10% since most bankers are going to quote 20-25%
down. In addition, the owner can purchase a building larger than he needs as long
as he occupies 51% and lease the other portion out to a tenant creating additional
income. The SBA loans are also assumable to qualified buyers.
|
Many people shy away from the program because they hear it is a nightmare. The truth
is the program has been so streamlined that if you choose your lender wisely, the
process should be rather painless and really does not require much additional information
as compared to a conventional loan.
|
Let me illustrate a real case example and how beneficial the financing can be:
|
Company A is purchasing a building for $700,000. They have incurred $71,300 in company
credit card debt as well as an additional $64,000 in equipment loans. The company
would also like $25M for working capital to help cover moving expenses and some
minor repairs. Company A is currently paying over $61,000 a year just for their
current lease and over $40,000 a year for the other debts. By consolidating all
of the company’s debt into the SBA loan along with the purchase, they were able
to reduce their debt service to $67,252 annually for a savings of close to $34,000
annually or $2,812 per month. What business owner couldn’t benefit from improving
their monthly cash flow?
|
So my question to you as an entrepreneur? Why are you not getting your piece of
the $17 Billion dollar pie? It might just be worth investigating. Remember, work
with a seasoned and experienced lender and an SBA loan package could just make your
dreams a reality.
|