Raising capital in the various stages of your business can be tricky, time-consuming and frustrating process. Many small businesses need access to low-cost, long-term financing but have a difficult time getting banks to work with them. The Small Business Administration (SBA) exists for this reason.
So could a SBA loan help your business? Perhaps.
A 2014 Forbes article praised SBA loans for providing affordable financing to small businesses. However, the downside is that the process of getting SBA financing is highly document intensive and potentially time consuming. This didn’t stop the 14,718 businesses that utilized the 7A program (a loan less than $5 million) in the fiscal year of 2015. Due to the complexity in getting these loans, many companies used SBA Loan Packaging Firms to help them with the process. The SBA doesn’t actually make direct loans, according to a an article in Entrepreneur, but rather provide a loan guarantee to entrepreneurs, backing 75 percent of your loan if you ever default on your loan.
A small business by SBA standards is any business that makes less than $5 million a year after tax profit. There are 28 million small businesses in America that account for 54 percent of all U.S. sales. As a small business owner you provide 55 percent of all jobs and 66 percent of all net new jobs since the 1970s. Franchised small businesses in the U.S. account for 40 percent of all retail sales and provide jobs for some 8 million people. The small business sector as a whole occupies 30-50 percent of all commercial space, an estimated 20-34 billion square feet.
By guaranteeing to the bank 75 percent of your loan, the SBA fosters small businesses’ long-term success. It recognizes the role small businesses play in the national economy and aim to “aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation,” as the Small Business Association succinctly put it in their mission statement.
Before SBA was founded by Congress in 1953 and even today, it could be tricky for a young company to obtain the kind of capital needed not just to start a company, but also to grow their business. The federal government realized the important role small businesses play on a national level both by job creation and the fostering of innovation. They serve as building blocks for the national economy and are a key component of the local economy.
As a business owner, forecasting growth is key, if you want to take your business to the next level. Planning and preparing for events in the future and taking financial risk can yield sizable returns. The ability to invest money in your company to grow is key, and often neglected, can be a significant piece to reach of the puzzle to reach your growth goals. However, it takes time, money and preparation, all resources small businesses might not have.
Loan packagers, such as SBA Loan Group, could make the process significantly easier for a small business. Through SBA Loan Group you can borrow money on a low interest rate (less than 6.25 percent) and pay it down over a long time period (10-25 years).
We would first look at your tax returns and financials and make sure that you qualify for an SBA loan. Then we would gather all the data needed for a loan, pre-underwrite the data to make sure it meets SBA requirements, prepare and file your application with one or more banks that we work with. We will then obtain a letter of intent, and assist you in finalizing and funding the loan. We are then paid a success fee at the closing of the loan.
Since the government backs the program, the process can be relatively complicated and require significant documentation, which means it can take 8-12 weeks before you actually get the loan. Although, most banks today do require personal guarantees for business loans, all SBA loans requires personal guarantee from any individual who owns more than 20 percent of the borrowing company.
There are two types of SBA loans 7(a) and 504. The 7(a) loan can be used towards all legitimate purposes that relates to building a business. For example, working capital, purchasing inventory, acquisitions, sales and marketing, hiring personnel, purchase of real estate for the use of your business and all other general purposes. A 7(a) can be for up to 5 million dollars. The other program within the SBA, 504, is specifically for purchasing real estate and /or alterations to the real estate, these loans can be for up to 14 million dollars. When purchasing real estate, both 7(a) and 504, only require only 10% down.
If you are interested in finding out more please click this link to fill out the short form and we will contact you or feel free to call us at (646) 699-1344 any time.
SBA Loan Group
New York, N.Y.
Editor’s Note: Other Financial Planning Association content that might be of interest to you includes:
- This informational publication, “Financial Planning and Your Small Business.”
- This post on FPA’s PlannerSearch.org, “Funding Considerations for those Starting or Expanding a Small Business,” by FPA member Amy Jo Lauber of Lauber Financial Planning.
- This post on FPA’s PlannerSearch.org, “Mind Your Own Business: Planning Tips for a Smooth Start-Up.”