Conventional Business or SBA Loan – Which is Better?
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There are usually only two options of financing available to small business owners.You can either acquire a conventional business loan or you can apply for a guaranteed loan by the United States Small Business Administration’s, (SBA’s), Guaranteed Loan Program.
There are advantages and disadvantages to each type of loan. We are here help you to determine which option will best serve your specific needs and will work with you each step of the way to make sure the entire loan process goes smoothly and quickly.
Guaranteed SBA Loan
Although these types of loans are provided through a commercial lender or bank, they are guaranteed by the United States government.
In order to qualify, small businesses must meet very specific criteria.
The business must prove a tangible net worth of less than $15 million.
A net income from the preceding 24 months that is less than $5 million after taxes.
From the Small Business Financing Handbook of Maricopa Community College
The 7(a) Loan Program is considered to be the most flexible type of loan, making it also the most popular method of financing for a diverse selection of general business needs. Working capital loan maturities are available for up to 10 years with maturities for fixed assets ranging up to 25 years.
The 504 Loan Program is the desired form of financing for those in need of fixed rate, long-term loans. This option works well for small businesses who anticipate future expansion, construction expenditures, or land purchases. Although this loan is supported by the SBA, it is delivered by the Certified Development Companies (CDC’s). Possible maturities range from between 10 to 20 years with lending fees that can be financed through the loan program, totaling approximately 3%.
The Microloan Program are smaller, short- term financing packages which can be used to purchase inventory, equipment, or supplies or to be used as working capital for the small business. These loans are dispersed through intermediary lending institutions which are specifically designated, each with their own guidelines and requirements. The maximum allowable term for microloan financing is 6 years, with interest rates that range from 8% to 13%.
The CAPLine Program is often considered the perfect financing solution for short-term or cyclical needs regarding the working capital of the small business. These loans can be tailor-made to suit the needs of any individual business with maturities ranging up to a maximum of 5 years.
Borrowers have easier access to financial capital than through the more traditional form of commercial loan.
SBA loans are often considered very good choices for first-time business owners or startups who do not already have an established history of financial expertise.
Due to the lower payment plans and longer maturity rates, these loans are a popular choice for business owners with temporary cash flow concerns.
Certain institutions are ineligible for the SBA loan program, including lending institutions, life insurance companies, nonprofit organizations, certain types of passive businesses, and privatized clubs which limit membership.
Certain types of guaranteed fees may be required on SBA loans which do not normally apply in cases of Conventional Commercial Bank Loans.
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Conventional Commercial Bank Loans
When applying for Conventional Commercial Bank Loans through your local bank, the individual loan representatives will take a significant amount of time to thoroughly understand the objectives of your company and to create a financial package that will be beneficial to both parties. The guidelines, fees, and requirements will differ from bank to bank.
Commercial and individual bank loans traditionally provide more competitive rates on market interest, as well as more reasonable repayment plans.
Conventional bank loans often cost less than SBA loans while enhancing and establishing a more positive overall relationship with your local lending institution. Local banks are more likely to cater to the needs of the local small business owner.
Long-term loans are more difficult to obtain.
Excellent credit ratings are often of critical importance.
Contact Capital Direct Funding today for more assistance and clarification on how to choose the right loan for your business. We are very aware of the current economic conditions that are being faced by local businesses and will make every effort to help you make an informed decision that will immediately benefit the growth of your business enterprise.
Applying for your Conventional Business or SBA Loan is easy. The more information you provide the better we can help you.