Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
1, Interest rates associated with SBA loans are typically on the lower end of the payment spectrum.
2, Monthly payments are typically up to 25 years for real estate and 10 years for equipment and working capital, which provides flexibility necessary to structure payments in line with your growth.
3, You should always have a plan for what you intend to do with your small business loan, whether it’s an SBA loan or a different product, but SBA lending is less restrictive in the specifics of how the funds are used.
4, There may be some unique challenges to getting funding from the SBA. It can take 60 days or more. The lender may charge a packaging fee. And the SBA may require a guarantee.
There are many different types of financing available to small business owners, but the advantages attached to loans from the U.S. Small Business Administration can make them hard to beat. These advantages may include lower interest rates, longer payment terms and manageable fees.
The SBA guarantees the loans, which lowers lenders’ risks, thus allowing them to help qualified entrepreneurs when the risks might otherwise be too great.
There are three types of SBA loans, each with their own terms, conditions and advantages:
In addition to being available for different business goals, here are some other advantages business owners should be aware of:
Taking out a small business loan comes with worries about what that loan will cost in the long run. Interest rates rising or changing is always a big concern. SBA loans are typically on the lower end of the spectrum. SBA 7(a) loans cap the margin a lender can offer. CDC/504 loans have longer fixed-rate terms and SBA microloans are different but equally inexpensive compared to the rest of the market.
Most business owners spend considerable time in search of capital. Banks don’t like risk, often putting small business owners in a tough spot. The emergence of alternative lenders and non-bank business loans have made the marketplace even more confusing, and those easy-to-qualify loans may not be a good deal in the long run.
An unbeatable advantage of SBA loans is the access to capital they allow. Because the SBA works with lenders, mostly banks, the bank may feel more comfortable offering you a multimillion-dollar loan than if you were seeking financing without the guarantee. This significantly decreases the bank’s risk.
The length of repayment terms offered through SBA loans are unlikely to put a financial strain on your business. Monthly payments are typically up to 25 years for real estate and 10 years for equipment and working capital, depending upon the lenders’ policies and guidelines. This offers the flexibility you need to structure payments in line with your growth.
Depending upon the type of financing you are seeking your lender will generally ask for a down payment. That can vary depending upon the amount of money you are borrowing, the purpose of the loan, your financial profile and the general policies of your lender.
SBA loans generally require some down payment, but it’s typically lower than other types of lending would require – possibly as low as 10 percent of the total request.
Some business loans come with specific terms dictating how you can use those funds. That doesn’t have to be a bad thing. For example, when you apply for equipment financing, you are looking to meet a specific need. But sometimes owners just need money. You should always have a plan for what you intend to do with your small business loan, whether it’s an SBA loan or a different product. You generally will not get approved without a plan for the money, but business does not always go as planned so flexibility sure can help.
SBA 7(a) loan funds can be used for almost any business purpose. The terms of the loan are pretty broad and you can use funds to refinance existing debt, buy business real estate, purchase inventory and more. If it’s a business need, it may be eligible.
Other SBA loans are a bit less flexible in purpose. The CDC/504 loans, for example, are for fixed assets, including real estate and equipment. But SBA loans will still have an advantage in terms of flexibility of use. You just need to find the right program for your need.
Depending upon which program you choose, there may be some unique details that should not be overlooked. Time to funding may take a little longer, often 60 days or more. The lender may also charge a packaging fee and the SBA may need a guarantee fee depending upon the situation. You also generally will be required to pledge collateral to your ability to do so. However, the SBA guarantee may make the lender more comfortable extending credit significantly beyond what is available for collateral, making an SBA loan a good tool for expanding your business when other sources of financing may not be available.
Generally, SBA loans are easier to qualify for than conventional loans. They do often require extensive financial documentation but if you get past that, getting to funding is generally easier. The SBA has no hard, fast rules around credit scores, revenue requirements or general business profile. They leave some room for the lenders to define what is acceptable to them within their loan policies. So, business owners must ask SBA lenders questions to determine their fit, such as:
The SBA generally will be looking for other non-negotiable items including:
In addition to personal information and financial documentation, you may need: A statement of purpose or a letter explaining the request, a business plan and very specific financial documentation for your situation and possibly that of your co-owners, who will need to be all in with you too.
