Benefits of SBA/USDA loans for Businesses

Benefits of SBA/USDA Lending

Lower Down Payments SBA loans typically require lower down payments comparedto conventional loans many times as low as 10% or for expansion projects… NO money down

Lower Monthly Payments Longer loan terms alow money payments to be lower which helps business cash flow.

More Flexibility This can include options like interest-only payments during the early stages of the loan or deferred payments. Collateral is also more flexible.

Small Business Administration (SBA) loans provide financing for businesses that are seeking more favorable loan terms or in some cases for businesses that may not qualify for a traditional small business loan. As compared to conventional financing. The SBA guarantees repayment of a percentage of the loan, which allows banks to make loans to businesses that wouldn’t typically qualify for commercial financing using normal underwriting criteria. (Think of this as an insurance policy) There are a number of opportunities and obstacles to consider before pursuing an SBA loan. Below are some of these to help you determine whether an SBA loan is the right financing solution for your business.

Lending Options

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The SBA Lending Process

Pre-Qualification Within 3 days Paul can get you a pre-qualification letter. A Pre-qualification letter will let the broker and seller know that a lender has reviewed your financials and that you are a good candidate for lending.

Underwriting/ Due Dilligence Within 5-15 days this is when the lender will look at all financials and order any require reports like a business valuation, appraisal, environmental. It is normal that the lender and other third parties will ask questions.

Closing Within 5-7 days the lender will seek final approval and work on the loan documents for the loan. Paul will go over the terms and conditions with you to make sure that what was offered in the pre-qualification matched the final approval.

SBA FAQ

Where can I get an SBA Loan?

Click here to contact Paul if you are in Washington, Oregon, or Idaho

Click here if you are out of these three states for a national lender

Do SBA lenders care more about collateral or cashflow?

Cashflow. That said, many SBA lenders also want some level of collateral. Most lenders have their own risk tolerance when it comes to lending without collateral.

Do I need to provide a Personal Guarantee?

Yes–anyone who owns 20%+ of the business will provide a personal guarantee

Will I need to pledge my house as collateral?

If you own real estate with 25%+ equity, you will need to pledge that equity toward the loan until the loan is fully secured, or all available collateral has been pledged–whichever comes first.

What are the SBA’s debt service coverage requirements?

The SBA requires a minimum debt service coverage of 1.15x, however that’s just the minimum. Most lenders would like to see over 1.25x.

How much cash does the SBA require me to put down?

The SBA has a 10% minimum equity injection requirement for 3 types of projects: business acquisitions, start-ups, and some partner buyouts. Outside of these, it’s the lender´s responsibility to determine if an equity injection is needed, and how much.

Do seller notes need to be on full standby?

Only if it’s being used as part of your required equity injection. If you are using seller financing as part of your 10% equity injection to buy a business, it will need to be placed on full standby for 2 full years or the first 2 years need to have no payments or interest only.

Are there any types of businesses SBA doesn’t lend to?

Yes: passive businesses, businesses that promote religion, businesses engaged in gambling, strip clubs, businesses involved with anything illegal on the federal level, etc.

How long does the process take?

It depends on the project. A transaction such as a real estate purchase or business acquisition will typically take 45-65 days from the time you first connect with your lender. Make sure to get the lender what they need as soon as possible for a faster experience.

Can I acquire part of a business?

Yes, but keep in mind, any remaining owners with 20%+ ownership must personally guarantee the loan.

Are “earn outs” allowed in a change of ownership transaction?

No – the purchase price must be fixed. That said, some buyers will utilize a “forgivable seller note” in their structure to protect against downside risk.