For over ten years I have been financing the growth of learning business owners across the country. However, I am still shocked at how little is known about the Small Business Administration. Either SBA verified credit programs or one-time changes implemented in Measures to combat COVID, any small and medium business should be aware of these really working government programs.
First of all, don’t give up if one lender tells you that you cannot get an SBA loan. There are more than 2,200 SBA lenders nationwide, each with a different credit appetite. Second, make sure you work with the SBA’s preferred lender. The process will be much less painful and will take about half the time. Finally, SBA loans should not be automatically discounted as too small. You will be surprised to know how much you can actually get.
The most popular of these programs is 7 (a), which provides working capital to grow and expand your business. Besides increasing inventory and hiring additional employees, this working capital can also be used to acquire a business, buy out a partner, or even refinance your debt. These loans can be as high as $ 5 million with a 10-year maturity and an interest rate of around 6 percent.
Other SBA programs include the 504 program, which businesses can use to buy a building, acquire land, renovate premises, or purchase equipment. The 504 loans are structured with the SBA covering 40 percent of the total project costs. The borrower receives 10 percent and the lender pays the balance. These loans are usually issued for 20-25 years at a variable rate.
These programs are excellent in “normal” times and even better now because of the sweeteners associated with the pandemic.
For example, thanks to the Care Act, no guarantee fees will be charged on new loans until September 30, 2021. These fees are usually 2.5 percent of the guaranteed loan amount. In addition, there are three months of payment forgiveness up to $ 9,000 per month. All payments made by SBA on your behalf are tax deductible. The catch is, you can’t wait until September 28th.th make a decision. If you want these benefits, you need to start the process in the next few weeks.
The SBA also increased its guarantees to creditors to 90 percent. Why is this important to you? Higher guarantees encourage banks to provide riskier loans than they otherwise would. In other words, your chances of getting approved have gone up.
These sweeteners are no small thing. Consider these examples:
Refinance your debt
The client has accumulated $ 350,000 in debt between her business credit cards, urgent debt, and a line of credit. Her monthly debt service was about $ 9,000.
By refinancing her debt into a 10-year SBA 7 (a) loan at 6 percent, she took advantage of the absence of government guarantee fees and a three-month forgiveness of payments. In addition to the immediate cash flow relief, her payouts starting in the fourth month are only $ 3,886.
Buy the business of your dreams
Or maybe you are looking to buy a business. For our purposes, let’s assume the purchase price is $ 1 million.
You must deposit a minimum of $ 100,000 (10 percent) through the SBA. Due to the indemnification law, the borrower will not have to pay an advance payment for the guarantee. Payments for the first three months will be $ 991.85, then $ 9,991.85 for the balance of the 10-year loan, assuming the interest rate is 6 percent.
Compare that to the $ 16,984 monthly payment you would pay with a typical five-year bank loan at a seemingly attractive 5 percent interest rate.
As always, you need to prepare your balances ahead of time to take advantage of these fleeting opportunities. If you do not have control over your financial condition, any lender will be wary of working with you.
The well-known saying “put off – you lose” is more relevant than it is today. Regardless of how much the pandemic has harmed you, opportunities now open up and need to be used to your advantage. The reality is that we need to get out of survival mode and start working to improve the resilience of our business in the future.