Why all the Hype With SBA Loans?

The primary benefits of the program include high levels of leverage, ability to roll working capital, and equipment costs into the loan.  In addition, underwriting standards are more flexible than typical commercial bank loans.  For example, SBA lenders allows for the use of business income projections and lower debt coverage ratios. 

Most people assume that projections are only used on start up businesses.  That is not the case; you can use them for example on turnaround situations or on expansion projects.  Say you needed to add an additional 30,000 sf of space onto your existing building to accommodate a new machine/type of production.

However your current level of net income does not meet the standards of your bank.  They are only considering your current net income (historical) not what it will be based on the expansion.  The SBA 7a loan can allow for this and accommodate your expansion. 

Lower debt coverage ratio are very important especially now, as the economy continues to sputter.  The typical bank now wants a 1.3 ratio, while the SBA 7a loan can go down to a 1.1 or even lower.  There are a few banks that will go to a .8, which means you are losing money every month (However you do have to have other compensating factors, like a relative high level cash, equity or a solid turnaround plan). 

But what the ratio really reflects is your real cash flow.  For example, for every $1 of annual mortgage payments, your business needs to nets $1.20 of net income to hit a 1.2 debt cover ratio.  So after you pay the proposed loan you would still have $.20 left over.  By bringing the ratio down to a 1.1 you don’t have to prove as much net income ($1.10 in this example) as you do on typical commercial bank deal. 

For these reasons and others, the SBA 7a loan remains a solid loan program for America’s small business. 

Other SBA Related Topics: Loan Programs

• SBA Business Loans
• SBA 7a Loans
• SBA Lender List
• SBA 504 Loans

Discussion Of SBA Financing:

• SBA Mortgage Financing
• SBA Lenders
• Expense of SBA Financing
• Most Commonly Asked Questions For SBA Loans
• SBA 7a Offers Highest Leverage of Financing For Businesses

News Related To SBA Loans: 

• SBA Loan Updates
• Decline in SBA Lending
• Fees Waived For SBA Loans
• Small Business Loan Book
• Why All the Hype For SBA Loans?
• Answers on Small Business Administration Loans