Hamlet & SBA Loans
Written by CMG News Contributor, Doug Carleton
In Hamlet Act 1 scene 3, 75-77, Polonius provides this counseling to his son Laertes – “Neither a borrower nor a lender be.” So we know that Polonius didn’t own a small business in today’s banking environment. If he did, he probably didn’t know about SBA loans.
As I wrote last week, the Federal Reserve has changed its policies from being generally focused on keeping inflation in check to being more accommodating of keeping interest rates low, to try to help the economy recover, and not as concerned about inflation. Iit is now generally assumed that interest rates will stay very low for the next two or three years, so there will be plenty of time to look at your company and its future to see whether a loan of some kind would help your company grow and increase its profitability. When SBA (US Small Business Administration) was created, the number one goal was to provide longer terms on all types of loans – fully-amortizing to create lower monthly payments in order to help small businesses ’ cash flows. Real estate is given a 25-year amortization, machinery and equipment 10 years, and working capital 7 years. Additionally, SBA loans cannot be called.
Machinery, equipment, furniture, and fixturestruction of real estate (must be at least 51% occupied by the borrower)ting guidelines just as banks do except that they are more flexible – witness the amortizations allowed by SBA. But the loans are still made by lenders (SBA does not make loans except for disaster loans). A lender has to approve a loan using its own credit requirements so if it decides to turn down a loan request the SBA never sees it.
SBA loans can be used for all eligible business uses (cannot be used for investment purposes) such as:
Purchase, renovation, expansion or new construction of real estate (must be at least 51% occupied by the borrower)
Machinery, equipment, furniture and fixtures
Refinance of eligible business debt
Working capital
Change of ownership (must be 100%)
What is the process for obtaining an SBA loan?
An application for a commercial loan is made to your bank. But before you even start, check your credit report. If you have problems in your credit report – some late or missed payments for example that lowers your score, the bank may not even consider your request. There is no specific number which is a go or no-go. It can differ between banks and you need to find out before you even make an application.
So in the low-interest-rate environment that we are in today, if you see growth opportunities where you would need financing, SBA financing may be a good option. the guarantee on SBA’s behalf and proceed to closing. Working with a Preferred Lender is the quickest way to get an SBA loan. A lender that is not a Preferred Lender must submit the package to SBA for it to review the bank’s underwriting before they issue the guarantee. This can considerably slow the process.
So in the low interest rate environment that we are in today, if you see growth opportunities where you would need financing, SBA financing may be a good option.
This blog entry is a slightly edited excerpt from Doug Carleton's 'The Daily Life Of A Small Business Owner' series. Doug was a mentor with SCORE, Startup Virginia, and Lighthouse Labs, and has 25+ years of experience in small business finance including 12 years in SBA lending. To contact Doug directly, please email him at sbaloanspecialist@comcast.net.