The benefits of SBA Loans over Non SBA Loans
SBA helps small businesses in acquiring through a wide network of lenders, so as to ensure development of small businesses. However, SBA does not provide small business loans on itself. It provides guarantee to lenders on behalf of loans. By acquiring SBA loans, small business owners get great financial support, while SBA provide guarantee to the lenders to pay their loan. Such guarantee provides great relief to the borrowers. They are able to get adequate finance, along with peace of mind to focus better on their business ventures.
SBA 7(a) loan allow lenders to get loan high as $5.5 million in cash with terms up to seven years. In this program, the government guarantees 85 percent of small business loans less than $150,000 and 75 percent for loans greater than that amount. Business SBA 504 loan program are designed to provide more than 90% financing on real estate or equipment in terms of first and second mortgage, where the lender holds the first mortgage at 50 percent of the loan amount, and the SBA act as a lender for an additional 40 percent of the loan amount. Thus, SBA loans prove to be beneficial for start-ups and small businesses over non SBA loans in many ways:
SBA vs NON SBA loans
As SBA provide guarantees to the lender on behalf of business owner, itprovides great relief to small business owner.
- SBA7(a) loan programs have much lower interest rates than other commercial financing alternatives and they prove to be cheapest option.
- Many times, it allows borrower to avail loan at interest as low as 6.75% on an SBA 7(a) loan. When you avail loan through non SBA resources, they charger greater rate of interest on the amount of loan.
- With SBA loan programs, borrowers are at better stage and capable of availing up to $5.5 millionto get a huge sum of capital to finance small business. No such privilege is available for loans availed from private lenders through other lending modes.
- The banks and real estate loan providers USA feel more secure in providing loan through SBA as it guarantees up to 85% of loans in case of borrower default. You don’t get any such privilege in non SBA loans.
- With SBA loans, small business owners are able to get more capital for financing their business through commercial; real estate. These loans have long repayment terms and hence payment schedule does not put any stress on the business. On the other hand, when you avail non SBA loans, especially those for short terms, you need to make payment in as few as three months.
- SBA loans allow projection based underwriting, so prospective business can acquire capital for initial business. It is provided on the basis of profitability estimates conducted taking into account different factors.
- When a loan is availed through a general lender, you need to make down payment depending upon the amount of loan, purpose of loan, type of loan etc. If a person has poor credit worthiness, they might have to pay higher down payment. On the contrary, SBA loans enable borrowersto avail loan at much lower down payment than many other types of loans. Borrowers usually need to pay just 10%-20% down payment for an SBA 7(a) loan or a business SBA 504 loan.
SBA loans are great financial sources for small businesses. They allow borrowers to get flexible loans on equipment, refinancing debt, inventory and more. These loans are very flexible and allow businesses to grow exponentially. SBA also provide resources to educate the small business owners and start-ups, so they get benefits of it. It also conducts many programs for small businesses
In brief, SBA helps small businesses to grow and succeed by the means of guaranteeing the SBA loans. These loans are usually better than loans offered by private lenders. These loans have longer repayment terms, more access to capital and a great network of resources.