SBA loans are backed by the Small Business Administration (SBA) and offer an array of benefits to qualifying businesses. The SBA doesn’t actually lend the money itself but encourages lenders to offer the loans by making assurances that they will be compensated in the event of default. These loans have more hoops for borrowers to jump through and take more time to qualify for, but there are several reason they are popular. For businesses that need capital benefits include:
- LOW RATES OF INTEREST:
SBA loans currently have rates ranging from 7 – 11% depending on qualifying factors. These rates are higher than you’d find on a home mortgage loan but are very competitive considering that mortgage loans are secured by a property whereas these loans are unsecured. If your current credit situation or other factors prevent you from qualifying for an SBA loan there are other loan alternatives available.
- FLEXIBILITY OF REPAYMENT TERMS:
After acquiring the loan and setting up the business, the next step is repaying it to the lender. Most small business loans provide a stricter regiment of repaying the money with a constricted timeline with most of them giving a maximum term of up to five years. But with SBA loans, it depends on the type of loan taken. Monthly payments for Real Estate can stretch to 25 years, 10 years for machinery loans and 7 years for capital. Also, microloans for a maximum of $50,000 can be repaid in a term of 6 years.
- REDUCED DOWN PAYMENT:
Down payments can vary depending on the lender who is responsible for providing the loan. But the down payments of SBA loans are lower than many other loan options. Most business loans require 30% of the loan as down payment which is often difficult for many businesses to come up with. But when it comes to SBA loans, the down payments can start as low as 10% and can go as high as 20%. And the best part is this; there is no down payment required at all for microloans!
If your business needs access to funds immediately an SBA loan is probably not the way to go. Their downside is that they take more paperwork and processing time. However if your business can hang in there for the time it takes for the loan to be approved and funded, these loans are oftentimes the best way to go.
If your business is dealing with negative credit issues that are making qualifying for financing difficult it is important to be realistic about the steps to take to get your credit back on track. While the trade off that comes with getting financing with damaged credit is often a higher interest rate or lending fee, making consistent strong payments on new financing is a way to start moving your credit back in the right direction.
For more details on what financial options your business qualifies for and the next best steps to take contact us today.