There is a lot of confusion and stigma around SBA loans. However, if you are a small business owner and are contemplating borrowing funds to grow, expand, or finance a project in your business, Small Business Administration loans might be your best option. The guarantee the SBA provides makes it easier for banks to provide the loan you need. Due to recent changes, there couldn’t be a better time than now to start applying.
In 2020, the SBA achieved historic lending figures, with loans guaranteed by their program exceeding a staggering $28 billion. You may be curious why now is the best time in the history of the SBA to secure your loan. Here are the top benefits!
1. No Fees: SBA Loan Fees Are Waived!
The US government is making continued efforts to stimulate the economy. Beyond removing the cap for SBA loans, currently, loan fees have been completely dropped, meaning there are considerable savings to be had.
For example, if you were to borrow $1 million from the SBA, the normal loan fees would be calculated as such:
$1,000,000 X 75% = $750,000
$750,000 X 3.75% = $28,125 SBA fee
Currently, you would pay nothing, saving your business over $28,000!
2. SBA Will Make Your First 3-Months Of Payments
You will not have to start paying on an SBA loan right away. You will have almost 120 days to make your first payment. This is not a deferment either or a tack on to the backend of the loan. The SBA will actually pay your first three months of principal and interest for you. Another stimulus action by Congress to stir up the economy in through hard times.
There are a lot of great things going on with SBA loans currently, and even existing programs that many don’t know to take advantage of. For example, we helped a hair clinic fund over $250,000 of new equipment and, in the process, helped him save $50,000 a year through refinancing previous debt and reducing monthly payments.
3. Get Up To 90% Financing
Commercial lenders typically limit their loan-to-value (LTV) to 70%, and if you get that, you are fortunate. However, because the SBA right now will back your loan for up to 90%, an SBA loan lender can give you more financing.
4. No Loan Covenants
Loan covenants are often overlooked by small business owners and can deliver them a kiss of death in the future. Commercial loans have covenants that, if you break, can lead to a default on your loan even if you have been making full payments on time every month.
However, SBA loans don’t include these covenants. For example, some of the things you will be avoiding if you take out an SBA loan right now include:
- A net worth requirement that is equal to or above the loan value
- Adhering to a minimum cash-flow standard set by the lender and having to show proof of this quarterly
- Requirements for your business to have a certain amount of cash on hand at all times
- Minimum debt to equity ratio
5. No Prepayment Penalty
The majority of SBA loans that have terms to be paid over a 10-year period do not have any prepayment penalties. The majority of SBA 25-year loans have a 3-year pre-payment period.
6. No Balloon Loans
Many conventional commercial loans balloon after the first 3-5 years. Often, you’re left to renew your loan and go through underwriting again or move it somewhere else. You could also pay it off, but you probably won’t have paid it down enough to make this feasible.
7. Closing Costs Rolled In
When you’re in the market for a loan, you may or may not have the money for closing costs. The SBA knows this can be prohibitive and even prevent you from being able to close on a loan, that’s why they’re allowing small businesses to roll closing costs into their loans. These costs can be anything from title fees to appraisal fees. Basically, any fee you might have to pay to close can be rolled into your SBA loan. Not only that, any fees you pay count toward your equity infusion. What’s unique about this is that it’s not an option in conventional financing.
SBA loans have always been a good option for small businesses looking to expand. Still, this year with additional measures coming from the US government for economic relief for business, SBA loans are now becoming the best option.
SBA loans offer a ton of benefits you cannot find with traditional commercial loans. They are more accessible to small businesses that do not have the financial history or assets needed to secure the funds they need for expansion.
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