One of the main benefits of SBA financing is high leverage, which can go up to 90% loan to value on commercial real real estate. No other commercial mortgage even comes close to this. For example, conventional loans are now generally capped at 65% on refinances and 70% on purchases for very clean transactions. Loan requests with “issues” are reduced to lower loan to values or are getting no offers at all.
Besides just the published guidelines, SBA financing is MUCH more reliable in terms of actually funding, than conventional loans. Because of the guarantee that the government provides to the funding banks, they are that much more willing to actually close. This reliability alone, coupled with the higher loan to value standards (in a declining property value market) should make SBA financing the top choice for business owners.
Major Benefits of SBA Financing
- As mentioned SBA loans are currently the most reliable from of financing in the nation for small business owners.
- 90% financing is still widely available.
- Special use properties, such as hotels, restaurant, automotive, etc are still getting funded via the SBA programs. Conventional financing, in contrast, is all but gone for special purpose properties.
- Rates and amortization schedules are competitive.
Many business owners are reluctant to go the SBA route because of the tainted reputation the agency has earned in the past. The key is to only work with banks and lenders that hold the highest level of approval by the SBA. If you work with a bank that does not hold the PLP approval, your loan will have to be underwritten twice. Once by the funding bank, than by the SBA… This is where the 6 months to close horror stories come from. 60 -75 days to close is common, when you work with the right source.
Another common objection is that SBA financing is more expensive than the comparative conventional loans – and for the most part, this one is true. The third party costs are typically 15% – 20% higher than on a conventional loan. There are additional closing items, like packaging fees and attorney review fees that you do not normally see on conventional deals.
Your decision towards the costs, should be weighed against the benefits such as higher loan to values and viability of closing (meaning that the probability of closing an SBA business loan is easily twice as likely, in this market, than non SBA financing).