Often forgotten SBA loans can fill critical funding gaps

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Companies tend to have a poor understanding of the Small Business Administration loan programs available to them. Owners’ information is often second-hand, leading to mischaracterization such as that SBA loans are expensive, take months to obtain, have a cumbersome application process and are not flexible. But an SBA loan could be a business bailout that might otherwise be passed on to a traditional bank loan.

“Business borrowers usually have two options,” says Kurt Kappa, the company’s chief credit officer. 1st Federal Lakewood… “Some may meet normal underwriting standards in order to get a loan. Other business owners may not qualify for various reasons and the SBA loan program may be the solution. A lender can help business owners understand why this might be a good option and how to take advantage of the SBA’s loan program. ”

Smart business spoke with Kappa about SBA loans and how they can help companies that do not have access to conventional debt.

What are the benefits of an SBA loan?

SBA loans require less capital investment by the borrower; repayment periods are longer than those of a regular loan, which can mean lower monthly payments; and insufficient collateral is usually not a reason for rejection of a loan application.

It may be important that the banker works with the business owner throughout the SBA process. An SBA specialist, who can be found at many local banks, can personally facilitate the loan cycle. They have specialized experience and a relationship with the SBA to anticipate and solve problems. They will work with the business owner to find the best solution for their lending needs.

Which businesses are right for the best SBA loan candidates?

At least a third of SBA loans are for startups or acquisitions. One of the main reasons a business chooses an SBA loan is because the borrowing company is at a very early stage in its life cycle. Early stage startups and companies have little or no payment history, and their often optimistic forecasts and other forecasts can be unreliable – the criteria traditional lenders rely on when approving loans. There has been a surge in buying lately as some business owners seek to retire after a tough 2020, and SBA loans may be suitable when there is not enough collateral to complete the deal.

SBA loans can also help businesses that are ready for rapid growth, typically over 10 percent a year. SBA loans can ease financial stress by providing funds for working capital, inventory, hiring, or capital expenditures.

How can SBA programs help companies that do business get back on their feet after COVID?

There are several underutilized SBA programs related to export credit. It is a special type of loan for businesses looking to expand export activities and can cover loans for equipment, premises, short-term working capital and standby letters of credit support. In addition to being used for export activities, a business that is negatively impacted by import competition can qualify for this type of SBA loan. In addition, a business may qualify if it engages in indirect exports and the borrower sells to a US-based buyer, but that client will export goods or services to a qualifying foreign buyer.

The SBA was created to help entrepreneurs get funding that they would not otherwise be eligible for. Lenders base their lending criteria on activity in 2020 and in some cases due to disruptions in 2020 do not see the profitability or cash flow they need to approve traditional loans. The SBA offers loans that can serve as bridge financing to help businesses get back on their feet and become stronger by 2021.

Insights Banking brings you 1st Federal Lakewood

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