The Small Business Administration announced that the most recent fiscal year ended Sept. 30, 2016 was a very robust year for SBA loans. The Trump Administration has proposed a small decrease in the SBA budget but no decrease in the amount of money available for small business owners.
They have also made efforts to allow the new SBA Administrator to increase the loan funding at the end of the fiscal year if needed. As a result, the SBA lending program should be in good shape in 2018 for the funding needs for small businesses.
The first reason that small business owners should be thankful is the fact that SBA loans allow access to funds for uses like inventory, equipment, working capital, and leasehold improvements. Most financial institutions shy away from lending on these uses of proceeds without the SBA guaranty. Most small business projects include these types of assets and the SBA loan program is the way to get non commercial real estate small business assets financed.
The second reason to be thankful for SBA loans is the fact that the terms and flexibility in terms SBA offers allows a financial institution to help a small business have the greatest opportunity for success by reducing the monthly debt service burden. Examples include terms of up to 10 years on things like equipment, inventory, and working capital loans. A typical financial institution term without the SBA would probably be 3-5 years if that long. SBA loans allow a term of up to 25 years on commercial real estate. Most financial institutions would allow a term of no more than 20 years without the SBA guaranty.
Another reason small business owners should be thankful is that SBA loans allow small businesses that cannot fully collateralize their loan the opportunity to get financing. While SBA lending institutions should attempt to collateralize the SBA loan as much as possible. SBA’s SOP 5010 5 (The SBA Rule Book for Financial Institutions) states that if the business assets do not fully secure the loan then the bank should take all available collateral including personal assets; however, it does not state that the loan has to be fully collateralized. It only states that the lender should take all available collateral.
Another reason small business owners should be thankful for the SBA is it helps provide security for the small business owner. Instead of having a loan amortized on 10 years but balloons at the end of a year which is a typical practice for lending institutions, the small business owner would get a full 10-year term and all they have to do to keep it for 10 years is to make timely payments. The small business owner does not have to worry about the dreaded annual renewal and the renewal fees and the possibility that the financial institution will ask them to move their loan.
A final reason small business owners should be thankful for the SBA is the fee relief on loans under $150,000. There is no SBA guarantee fee on SBA loans under $150,000. Additionally, there are no fees on SBA Express loans for Veterans up to the program limit of $350,000.
Be thankful small businesses, there is actually a federal government program whose objective is the success and longevity of your small businesses.
Editor’s note: Lance Sexton is the senior vice president-SBA manager at Springdale-based Legacy National Bank. Opinions, commentary and other essays posted in this space are wholly the view of the author(s).