Top 5 Reasons Why An SBA Loan Would Help Your Business
As the country’s economy continues to grow stronger and more diverse, unemployment rates continue falling. This means that small businesses are expanding all over, putting pressure on those who have not yet done so to make plans for competitive growth. If you find yourself in this position and you are not quite sure how to finance it, there are a few really great reasons to turn to an SBA loan.
1. Lowered Up-Front Costs
Traditional bank loans can require as much as 30% down on the total cost of the loan, not just the loan amount, to get the ball rolling. SBA loans can cut this amount to 20% or so, a one-third reduction. In addition to that, the these loans also fold all of the fees and other non-interest costs into the down payment, reducing overall interest paid and allowing for a smoother prediction of your overall loan cost.
2. Flexible Repayment Terms
For lenders to be included in the SBA loan program, they need to guarantee a few terms to the borrower. Among these are the elimination of onerous “demand” clauses that allow financial institutions to unilaterally demand repayment due to their own restructuring. The SBA pairs this with generous loan amortization schedules that take into account the use of the loan, meaning that you can get longer terms for real estate, realistic useful life expectancy loans on equipment, and generous terms for inventory loans.
3. Reasonable Prepayment Penalties
Many business loans come with prepayment penalties, but an SBA loan can often be paid off early without penalties. It is true that some prepayment terms exist, but they typically only apply if the prepayment amount exceeds 25 percent of the total size of the loan, which means that paying off a 10 year loan in half the scheduled time would not result in any penalties.
4. SBA Loans are Assumable
Individuals can assume the loans relatively easily, with a simple application. This allows you to take over a loan if you need to get it off your company’s books or to assign its repayment to a new partner as part of a buy-in deal in lieu of a cash infusion. While only a small number of people will need to use this option, it is good to know it is available.
5. An SBA Loan Does not Require Deposits
Financial institutions working with this program can not require you to maintain a certificate of deposit, checking or savings account, or any other ongoing business. Nor do they typically use financial ratios to determine the status of the loan. This opens up the pool of qualified borrowers quite a bit, and allows you more flexibility while managing your business’s finances.
Now is the time to consider your expansion strategy, as well as the role that loans guaranteed by the Small Business Administration might play in it.