<< Superhero continued from Page 31
“SBA loan programs have capped
interest rates and offer lower
downpayments, making upfront
costs more affordable.”
With an SBA loan option for their clients, mortgage brokers can offer businesses access to the same type of long-term, fixed-rate financing enjoyed by larger companies. Interest rates are equivalent to favorable bond-market rates and
are backed by an SBA loan guarantee.
Each SBA loan program is structured under government-directed guidelines to include maximum loan amounts and interest rates, guarantee fees,
use of proceeds, eligibility criteria and more. Matching clients to the right
program requires a deep understanding of these intricacies.
Plus, SBA requirements are constantly changing. Brokers need to be
plugged in to keep up, so the support of a team of SBA loan specialists is a
critical first stage of client engagement.
What are SBA loans?
SBA loans are long-term, low-interest loans tailored to small businesses, the
definitions of which vary widely among industries. Small-business loans
also are backed by a government guarantee, alleviating risk for lenders and
opening doors to financing for businesses that have struggled to get a
SBA loan programs have capped interest rates and offer lower down-
payments, making upfront costs more affordable. They also feature longer
repayment terms, which reduces monthly payments. The programs include
refinancing options to reduce debt and release cash flow; programs for
providing easier access to credit for so-called “high-risk” industries like con-
struction, gas stations and home-based businesses; and programs that help
free up capital for real estate investments.
The SBA 7(a) program, for example, with loans up to $5 million and fees
as low as zero percent, can be used to purchase real estate or equipment
— including the cost of construction or renovation — purchase an existing
business, or to refinance debt.
Certified Development Company (CDC)/504 loans are ideal for businesses
looking to expand through investments in land or buildings — but not
speculation or investments in rental real estate. The CDC/504 loan provides
long-term, fixed-rate financing up to $5.5 million. Soft costs like architectural
and legal fees also can be rolled into the loan. Downpayments as low as 10
percent are a big attraction of this program, because banks often require
20 to 30 percent of the purchase price. That downpayment is based on total
project costs in most cases, which includes renovations and soft costs. That
allows a business to preserve cash for working capital.
Advantages for mortgage lenders include lower risk, because the SBA
guarantees the loan; a lower loan-to-value (LTV) ratio; Community Reinvestment
Act credits; and being able to offer another option for keeping growing,
small-business clients happy. Essentially, SBA loans offer a valuable financing option that enables brokers to expand offerings to eligible businesses
beyond their current purview by teaming with an SBA lending partner.
Continued on Page 34 >>