No Small Business Administration Loan (SBA) Fees!

Because of the continuing efforts of the US government to stimulate the economy in this pandemic-ridden year, they have dropped the SBA Fee completely.

Here is an example of what you would save on a loan amount of $1 Million right now:

NORMAL SBA FEE on $1 Million:
$1,000,000 X 75% = $750,000
$750,000 X 3.75% = $28,125 SBA FEE

WHAT YOU PAY NOW on $1 Million:
$0
That’s right. Nothing, Goose Egg, Nada!

You will not have to start paying on an SBA loan right now until the fourth month. This means you have almost 120 days to make your first payment. This is not a deferment of payment or a tack on to the back end 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 the economy in these tough times.

Try getting anywhere near that percentage in a conventional commercial loan? You won’t get close! The reason SBA lenders can offer this is that the loans are backed by a guarantee from the United States government that states upon default the government will reimburse the bank right now up to 90% of the loan amount. That is why SBA lenders are able to offer much higher LTVs than you will ever get with conventional loans.

This is the part that a lot of business owners overlook and could be the kiss of death for them. All conventional commercial loans have covenants. If you break a loan covenant it can put you in hot water with the bank and you may end up in default and eventually into special assets even if you have made all your payments on time every month.

Here are four examples of loan covenants in the conventional commercial marketplace that do not exist in the SBA world:

• Minimum Net Worth requirement equal to the loan amount
• Fixed Charge Coverage Ratio where you must adhere to a minimum cash-flow standard set by the lender that you will have to prove every quarter
• Minimum Liquidity Requirements where you must have a certain amount of
  cash-on-hand in the bank at all times
• Minimum Debt to Equity Ratio meaning you must adhere to a certain percentage set by the bank of what they see as an acceptable amount of what the company owes as opposed to what it owns

SBA loans are fully amortized over a 10 or 25-year loan schedule. Most conventional commercial loan programs balloon after 3-5 years and then you either have to renew the loan and go through the underwriting process again, move the loan somewhere else, or pay it off.

Most 10-year SBA loans do not have any pre-pay provisions at all. Most 25-year loans have only a 3-year pre-payment period.

You can roll in all your closing costs into the loan itself. Example: appraisal fee, environmental fees, attorney fees, title fees, and any other miscellaneous fees. Also, any fees you pay count toward your equity infusion in the loan which does not happen in conventional financing.