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SBA Loan benefits include longer terms and larger loan amounts than you might be able to obtain through a conventional loan. They also include competitive interest rates and no balloon payments or annual reviews. Successful companies like Nike, Federal Express and Apple Computer once used SBA financing to make their goals a reality.
And all SBA loans are fully amortized. To understand the benefits of full amortization, consider a loan that is used to purchase commercial real estate.
The conventional bank loan is normally amortized over 15 to 20 years and renewed every 3 or 5 years. So, when a small business owner faces the 3 year review of that conventional loan:
- The bank may decide that its risk appetite no longer favors loans for those types of businesses and therefore requires full payment.
- The bank may review and reamortize the loan over another 15 to 20 year period which would mean more interest over the term of the loan.
- If the small business is doing well, the bank may renew the loan as is, but often the borrower must still pay thousands of dollars in costs associated with the renewed loan application.
All of that uncertainty and additional expense for refinancing or restructuring of the loan, is eliminated with SBA financing which is fully amortized over the entire 25 year term with no annual reviews or balloon payments.
For small businesses, cash flow can be a major concern. A SBA guaranteed loan may be the answer and possibly the best way to obtain long term financing. SBA loan terms typically range from 7 to 25 years, fully amortized, depending on the purpose.
SBA guaranteed loans are made by private lenders and are guaranteed by the SBA with funds appropriated by Congress. Annually, the SBA guarantees over $10 billion for these types of loans.
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