One service area that we are always asked for insight and guidance on is our Business Financing Services. For this month’s column, we combined all of the most popular financing questions into one comprehensive article. Continue reading below as Doug Gober, Partner provides some insights on SBA financing, debt refinancing, borrowing limits, and more.
Question: Why would I want to get SBA financing instead of going to my local bank?
Doug Gober: Since its inception, SBA lending has become very popular because it opens the door to a larger base of entrepreneurs transitioning into businesses. It does so by reducing the amount of initial investment required and extending the terms on of the loan.
Unless you have significant investment dollars available, it is difficult for quality, skilled people to become a business owner using conventional lending.
Conventional commercial lending effectively bases their lending decisions on the value of collateral, mainly real estate collateral. SBA lending will go beyond that and will loan money on the real estate and business value as well. For example, if we value a business at $2 million that has commercial real estate valued at $1 million, a conventional commercial lender will normally loan up to 80% of the real estate value or $800,000.
SBA lending will loan up to 90% of the entire transaction. For example, with a $2 million transaction, SBA lending would likely lend up to $1.8 million. Typically, SBA lending offers terms as long as 25-years compared to term loans of 10-20-years with conventional lending. SBA lending offers opportunity to many folks to get in business where conventional lending might not.
Question: Is now a good time to refinance my debt?
Doug Gober: There has never been a better time than today to consider going into debt If you have a current debt structure where your average interest rate is more than 5.75% or your average term is less than 15 years, you should consider refinancing.
You could potentially have the same payment with a shorter term or a lower payment that improves your monthly cash flow. In my opinion, we are not likely to see interest rates and terms that are any better than what they are today.
The opportunity to free up additional cash flow is never a bad idea, if you have a good plan of what to do with it. As they say, cash flow is king!
Question: What things can I do to improve my credit profile?
Doug Gober: There are several things you can do to improve your credit. In no order they are, have credit, pay your debt on time, live within your means, and have a plan.
Question: How much money am I able to borrow?
Doug Gober: Generally speaking, you can borrow as much as your business or the business you are seeking can support. No bank in America is going to loan you money because you are a nice person. They are going to evaluate you personally and the business you are seeking on its the ability to pay the loan back.
Lenders spend a great deal of energy and effort trying to determine the right mix of credit worthiness and accurate cash flow. Sometimes we forget that not only are we taking a risk to borrow money, but so is the lender. They are running a business, not a benevolent society. If you are still unsure of how much to borrow, we can help!