Every entrepreneur or small business owner will eventually need additional funds to launch or grow their business. When that time comes, it’s important to remember that not all loans are created equal. Depending on your use of loan proceeds, credit history, business type, and loan amount, certain options may suit your financial needs more than others.
The first step is deciding whether you’ll apply for a conventional business loan or an SBA loan. Here are a few key differentiators between the two.
SBA loans come with a government guarantee through the Small Business Administration. In an effort to make more loans available to small businesses, the SBA will guarantee banks a certain percentage in the event that someone defaults on the loan. With a conventional loan, the bank carries 100% of the risk if a business defaults on the loan. The SBA’s guarantee is the main reason why SBA loans can offer incentives that conventional loans cannot since it covers the majority of the risk for the lending institution.
Typically, SBA loans can offer business owners higher loan amounts than a conventional loan. Most SBA loans offer up to 90% financing and the SBA 504 program alone can offer over $10 million to business owners. This keeps more money available to the business owner to fund growth and create more profits.
SBA loans tend to be more flexible due to the backing of the SBA. This allows the bank to offer borrowers more flexible loan structures, including multiple uses of proceeds in one loan. With an SBA 7(a) loan, for example, we can structure the acquisition of both a business and the related real estate (along with working capital, fees and closing costs) in one loan, finance up to 90% of the Total Project and often taking it out to a full 25-year term. In conventional financing, this would be 2 or possibly 3 different loans all on different amortization schedules, all on shorter amortizations and closing costs are not usually financed. Bottom line, SBA loans increase the amount of available funds with a longer term often with a lower monthly payment than conventional options. This means more cash flow available to the business owner to support the business.
Longer Loan Terms
SBA loans have much longer terms than the average conventional business loan. As a result, the monthly payments are often much lower with SBA loans. SBA loans are also structured to be fully amortized with no balloon payments. This is not always the case with conventional loans, leaving some business owners to pay sizable amounts after their loan matures.
The application process for conventional loans differs from SBA loans. In most cases, there is more paperwork required for SBA loans to satisfy the SBA’s underwriting and closing requirements. This is where having an expert SBA team like FNB Small Business Finance on your side is so important. Our Business Development Officers can help you seamlessly navigate the application process and our Preferred Lender Status means faster approval times.
There are many options available for your business to receive the funding it needs. Reach out to FNB Small Business Finance to find out if an SBA loan will best suit your needs. Our experienced team of Business Development Officers, Credit Underwriters, and Closing Specialists are ready to partner with you to help you succeed.