In the past, several small-business owners wouldnt look twice at U.S. Small Business Administration (SBA) 504 loans. These loans were known for significant setbacks plus substantial paperwork requirements, and a shortage of lending experts effective at funding them successfully.
But everything has changed. The SBA has overhauled its systems, and more financial institutions have preferred-lender status. This allows for approval at the bank level; the SBA simply confirms the banks decision.
Today, the issue is getting small-business owners in to these loans. A lot of lenders find the SBA 504 loan appealing not because of its profitability. The banks like these loans because they are safer as they are only responsible for first 50% of the loan. Furthermore, some banks that offer these financing options are experienced in the 504 program.
Many companies looking for a commercial loan may very well be offered an SBA 7(A) loan first. This financing product isnt well suited for commercial real estate because it has variable adjustable rate based on prime rate. However most banks won't finance transactions that are less than $1M.
The following are some factors why the SBA 504 loan may be the ideal lending product for small- and midsize-business owners:
1. Capital preservation: The SBA 504 loan offers up to 90 % financing of the total project costs for commercial real estate purchases. This enables small business owners to retain more capital for other uses.
2. Below-market interest rates: Businesses will save on interest expenses by not accepting market interest rates when below-market, fixed interest rates are offered with the 504 loan.
3. Longer loan amortizations: Longer loan terms provide smaller payments, which assists a businesss income. Furthermore, because prepayments are permitted (generally around 20 % of the principal balance), businesses can have the best of both worlds - smaller payments when times are tough but the power to prepay when excess funds are accessible.
4. Less effect on cash flow: Because applicants only put in 10 % equity, get below-market interest rates and get longer loan amortizations, their cash flow is less affected, and they can continue to realize all the benefits of purchasing or constructing commercial real estate.
5. Decrease in property expenses: Owning property rather than leasing normally means a substantial decline in property expenses - around Forty percent. Ownership also offers the extra benefit of switching a sizable adjustable expense (rent) to a fixed cost (mortgage).
6. Loans accessible for closing and other soft costs: Financing closing and other expenses using the 504 loan will help keep out-of-pocket expenses to a Ten percent minimum.
7. No balloon payments, calls or covenants: Without balloon payments, calls or negative loan covenants, borrowers have peace of mind.
8. Short closing time: Closing in as little as 1 month allows small business owners to take possession of their new asset.
9. Best deal overall: This loan offers small and midsize businesses advantages previously only known to larger enterprises.
When you take a closer look at the SBA 504 Loans, it is clear that it is the right choice for many small-business owners.
But everything has changed. The SBA has overhauled its systems, and more financial institutions have preferred-lender status. This allows for approval at the bank level; the SBA simply confirms the banks decision.
Today, the issue is getting small-business owners in to these loans. A lot of lenders find the SBA 504 loan appealing not because of its profitability. The banks like these loans because they are safer as they are only responsible for first 50% of the loan. Furthermore, some banks that offer these financing options are experienced in the 504 program.
Many companies looking for a commercial loan may very well be offered an SBA 7(A) loan first. This financing product isnt well suited for commercial real estate because it has variable adjustable rate based on prime rate. However most banks won't finance transactions that are less than $1M.
The following are some factors why the SBA 504 loan may be the ideal lending product for small- and midsize-business owners:
1. Capital preservation: The SBA 504 loan offers up to 90 % financing of the total project costs for commercial real estate purchases. This enables small business owners to retain more capital for other uses.
2. Below-market interest rates: Businesses will save on interest expenses by not accepting market interest rates when below-market, fixed interest rates are offered with the 504 loan.
3. Longer loan amortizations: Longer loan terms provide smaller payments, which assists a businesss income. Furthermore, because prepayments are permitted (generally around 20 % of the principal balance), businesses can have the best of both worlds - smaller payments when times are tough but the power to prepay when excess funds are accessible.
4. Less effect on cash flow: Because applicants only put in 10 % equity, get below-market interest rates and get longer loan amortizations, their cash flow is less affected, and they can continue to realize all the benefits of purchasing or constructing commercial real estate.
5. Decrease in property expenses: Owning property rather than leasing normally means a substantial decline in property expenses - around Forty percent. Ownership also offers the extra benefit of switching a sizable adjustable expense (rent) to a fixed cost (mortgage).
6. Loans accessible for closing and other soft costs: Financing closing and other expenses using the 504 loan will help keep out-of-pocket expenses to a Ten percent minimum.
7. No balloon payments, calls or covenants: Without balloon payments, calls or negative loan covenants, borrowers have peace of mind.
8. Short closing time: Closing in as little as 1 month allows small business owners to take possession of their new asset.
9. Best deal overall: This loan offers small and midsize businesses advantages previously only known to larger enterprises.
When you take a closer look at the SBA 504 Loans, it is clear that it is the right choice for many small-business owners.