Here are nine advantages of an SBA Guaranteed Loan:
- Longer Terms – Up to 25 years for real estate loans. Conventional loans often have a maximum 15-year amortization schedule, which can make cash flow difficult during slow periods. Startup leasehold loans can be as long as ten years, vs. three to five years at a local bank.
- Lower Down Payment – SBA loans typically have down payments that are usually no more than 20% of the entire project cost. This can greatly lower your overall cash out-of-pocket and increase the rate of return on your investment. Conventional loans often have down payments of 30% or more. Conventional loans also often do not finance the loan soft costs, where an SBA-guaranteed loan includes the soft costs (appraisal, title, processing, etc.) within the loan project cost.
- No Early Balloon Payment – (Also no payable on demand clause, like most conventional loans) SBA guaranteed loans are “fully-amortizing”, so you will not face the stress and time-consuming chore and possibly costs of refinancing your loan every few years.
- No Prepayment Penalty – if the term is less than 15 years. If 15 years or more, it’s a 3 year prepay, but only if you prepay more than 25% of the loan in any one year or if you pay off the entire loan early. The prepayment penalty is calculated on the amount that is in excess of 25% of the balance, and is 5% in the 1st year, 3% in the second year, and 1% in the third year. So, you could pay the loan off in as little as 3 years and 1 day with no prepayment penalty.
- No Ongoing Debt Service Requirements – Usually there will not be a minimum requirement to keep a ratio of your monthly debt payment to the income stream that your business brings in, normally known as a debt service requirement (most often a mandatory requirement of traditional bank financing).
- One-time Close for Construction Loans – If your plans call for construction, it’s a one time close. With no second closing, you begin the amortization schedule (repayment) after construction is completed. You only have to sign one set of documents, work with only one lender, and attend only one loan closing. In addition to the convenience of a single closing, this also saves you money on closing costs.
- Working with a Preferred Lender streamlines the process – Under the SBA’s Preferred Lender Program (PLP), the SBA has authorized the PLP designated lender to make lending decisions on their behalf. Loan proposals do not need to go to the SBA for approval, which means the process moves more quickly and can usually close in the same time it takes a typical conventional commercial loan to close. The PLP status is only established after a lender has had a solid, ongoing relationship with the SBA. PMC Commercial Trust has achieved this PLP status through its subsidiary, First Western SBLC, Inc.
- Available property types to finance are more numerous under SBA- The property being purchased must be for business use and can either be an Industrial or Commercial Building, a Retail Shop, Office Condominium, or even a single purpose property (such as a Gas Station, Car Wash, Motel, Restaurant, etc.). The business must occupy at least 51% of the property being purchased.
- SBA-guaranteed loans are assumable- SBA loans are assumable with a relatively simple application subject to approval and a small fee.