With all of the hoops you have to jump through to get a loan guaranteed by the SBA (Small Business Administration), it can be logical to ask what the benefits are to such a venture. Why should you go through all that hassle when you can just go through a lender to get the financing you need? The answer is actually rather simple. There are many benefits to getting a Small Business Administration loan that you may not be aware of. These benefits far outweigh the negatives when looking at the application process. There are three main benefits to SBA financing.
Lower Down Payment and Out of Pocket Costs
When you use SBA financing to make a purchase, you can usually get the loan for around ninety percent of the purchase price, making your down payment around ten percent. The average down payment is around thirty to forty percent with normal business loans, which only typically cover sixty to seventy percent of the purchase amount. This is a huge benefit to an SBA loan and one that should make all the hoops you have to jump through worthwhile.
In addition, a Small Business Administration loan allows you to finance the entire cost of a project. Rather than simply paying for the project itself, you can finance soft expenses such as accountants and architects. This allows you to spend less money out of pocket for your project.
Higher Closing Rates
It is very likely that you will have a hard time getting a business loan through normal channels. Banks are becoming increasingly nervous about taking on new risks, especially in this economy. Not wanting to seem like they are in trouble or worried, they will often drag out the approval process for a business loan for months at a time, before ultimately declining the application. This wastes your time and ultimately gets you nowhere.
On the other hand, when you get a loan from the Small Business Administration, you are almost guaranteed that you will be approved by the lender, provided that you meet all the qualifications. Banks are much more willing to take a risk when that risk is guaranteed by a government organization. In the case of most business loans, the Small Business Administration guarantees around ninety percent of the loan. This means that the bank is only really risking ten percent of the loan amount, which is much more feasible for most lenders. In addition, lenders know the process you have to go through to get financing from the SBA, and it makes them feel good about lending you the money.
When you get financing from the Small Business Administration, you receive better terms for your loan than with a traditional business loan. For one thing, your interest rate is significantly lower because the Small Business Administration caps what can be charged for interest on the loans that they guarantee. These rates are often fixed, so you know exactly what your monthly payment will be for the duration of the loan, which in turn helps you plan your business finances and make accurate projections. In addition, the time you have to pay off the loan is typically increased. Most lenders do not want to loan money to businesses with more than a fifteen-year amortization, but a SBA loan can often go for up to twenty or twenty-five years.
An SBA loan can be a better option than a traditional business loan due to the lower down payment, out of pocket expenses, higher closing rates, and favorable terms. Although the lending process can take twice as long, the long-term benefits make it worth it. To learn more about SBA loans and their broad range of financing options, you can visit the SBA’s website at www.sba.gov/funding-programs/loans.
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