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
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.