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The Best Working Capital Loan Available Today

In 2014, the Small Business Administration (SBA) introduced the Small Loan Advantage loan program often referred to as the SLA loan. One lender created an “SBA Express Loan” and capped the loan request amount at $150,000 to limit the risk since real estate collateral is not required. Instead, only business assets are used to collateralize the SBA Express Loan.  The main approval requirements are good personal credit & a reasonable amount of liquid assets which includes $ in checking, savings and retirement accounts as well as marketable securities.  New and existing business owners are eligible for this unique loan product.

Small Business Administration (SBA) Express Working Capital Loan

This government backed loan is designed to provide working capital ranging from $20,000 to $150,000 for start-ups and existing businesses.  The main purpose of this loan is to provide the funds necessary to support the company until the business generates positive cash flow. The loan process takes between 30 to 90 days to complete before the loan funds.  The SBA loan process requires attention to detail to complete the application and contingency requirements.

The interest rate for this loan is calculated by starting with the prime rate as published in the Wall Street Journal which is currently 4.25%. The bank charges a risk premium ranging from 2.75% to 4.75% on this loan so the interest rate will range from 7% to 9% depending upon the loan amount. The larger the loan amount, the lower the interest rate. For example, a $25,000 loan has an interest rate of 9% while a $150,000 loan has an interest rate of 7%.  This loan has a variable rate which will change when the Federal Board of Governors raises or lowers the rates.  The most recent .25% rate increase raised the SBA loan payments on a $150K loan by approximately $18.00 per month.  All SBA loans have closing costs which are typically 3% of the loan amount.   The loan’s repayment term is 10 years and there is no pre-payment penalty so if the business is profitable, the loan can be prepaid to save interest expense.

A Wide Variety of Business Uses

  • Financing a New Business – If the use of the loan funds is to help finance a new business, the loan can be approved in advance to the business’s opening, however the funds will not be distributed by the bank until the new location has received a certificate of occupancy.  This insures that the money will be used to operate the new business & will not be used to pay for build out construction costs.
  • Consolidating Existing Debt for an Existing Business – Many existing businesses have turned to alternate lenders to provide financing after the financial crisis because banks have tightened their lending standards.  If a business has high interest debt, this loan product is perfect for refinancing existing business debt if the resulting monthly loan payment be at least 10% lower than the current debt repayments. This is almost a given in all cases because the interest rate is 7-9% and the repayment term is 10 years. The best part is that existing businesses should fund in 15 days or less!
  • $25,000 SBA Working Capital Loan for New and Existing Businesses – The $25,000 loan amount deserves its own paragraph because it is a totally unsecured loan!  No business or personal assets are required to be pledged as collateral for this loan!  It is a quick process that can take less than a month to close if the business owner focuses on the required forms. There is absolutely no competitive product available to a new or existing business owners now!  In short, this is the best product on the market today for a $25,000 business loan that can be used for any business purpose!

The purpose of using SBA loans is to access other people’s money (OPM) and preserve the business owner’s capital.  The goal is to borrow the money at a cost that is less than the business profit percentage.  For example, a SBA working capital loan has a 7% interest rate.  Assuming the business operates at a 15% profit margin, the business owner is using OPM at a cost less than half of your anticipated return on capital!  The best part about the SBA Express loan is that the collateral is your business assets… not your home … just your business assets!

Paul Bosley is a Managing Member of the Business Finance Depot.

www.businessfinancedepot.com

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The Perfect Franchise Financing Combination

When an entrepreneur is considering purchasing a franchise, various financing options are considered and the most appropriate financing product(s) is typically selected. For example, an equipment lease is often chosen for financing new equipment needed to run the business. Another option is to finance the entire business with a SBA 7(a) loan. A 3rd option is to self-fund using funds saved in the entrepreneur’s retirement account using the R.O.B.S. program established by the IRS. It is very unusual when two financing products are complementary & can be selected jointly to finance a new business. With the introduction of the SBA Express loan, this changed because an SBA Express loan perfectly complements an equipment lease for financing a new franchise and the expansion of an existing franchise.

In 2014, the Small Business Administration (SBA) introduced the Small Loan Advantage loan program some lenders refer to as the SBA Express loan. After the “The Great Recession”, many homeowners lost their real estate equity which is used as collateral requirement for a SBA 7(a) loan approval in most cases. Consequently, many perspective borrowers were unable to secure financing because they lack the equity in their home required to collateralize their loan request. The SBA Express loan is capped at $150,000 to limit the lender’s risk since the borrower’s real estate collateral is not required and business assets are used to collateralize the SBA Express loan.

Since the collateral used to secure an equipment lease is the equipment being financed and the collateral for the SBA Express loan is the equipment needed to operate the business, these 2 debt financing products are compatible! Furthermore, since the underlying concept of the SBA Express loan is to provide working capital, financing the equipment needed to operate the business provides the franchise owner more working capital so the underlying reason for both products is the same.

Capital Leases – Leasing Equipment to Own

The most common financing option available for franchises using equipment leasing is a capital lease. The main purpose of a capital lease is to finance the equipment purchase while preserving the owner’s working capital. Franchisees can finance the purchase of their proprietary equipment, security systems, computer hardware & software, flooring, outdoor signage and other tangible items needed to run the business using an equipment lease. The owner(s) are required to personally guarantee equipment lease.

The required down payment ranges from a lease payment up to 20% of the amount financed. Lease documentation fees may range from $95 to $495. Repayment terms typically range from 12 months up to 60 months. All payments made are tax deductible so the payments will lower business’s taxable income and, in turn, tax liability. Since the plan is to keep their equipment long term, a typical capital lease offers a $1.00 end of term purchase option. In short, an equipment lease is used to finance the purchase of all equipment needed to manage the franchise; thus, preserving the franchisee’s working capital.

Small Business Administration (SBA) Express Working Capital Loan

This government backed loan is designed to provide working capital ranging from $25,000 up to $150,000 for start-ups and existing businesses. The main purpose of this loan is to provide the funds necessary to support the company until the business generates positive cash flow. The loan process takes 60 – 90 days to complete on average before the loan is funded. The SBA Express loan approval requirements are good personal credit & some liquid assets and the loan process requires attention to detail. If the use of the loan funds is to finance a new location, the loan can be approved in advance, however the funds will not be distributed by the bank until the new location has received a certificate of occupancy. This insures that the money will be used to operate the new business & will not be used to pay for build out expenses.

The interest rate for this loan is calculated by starting with the prime rate as published in the Wall Street Journal which is currently 4.25%. The bank charges a 2.75% risk premium on this loan so the interest rate is 7% now. This is a variable rate loan which changes quarterly when the Fed Board of Governors decides to raise or lower the prime rate. The most recent .25% rate increase implemented at the end of last year raised the SBA loan payments on a $150,000 loan by approximately $18.00 per month. The repayment term is 10 years and there is no pre-payment penalty so if the franchisee is extremely profitable, the loan can be prepaid to save interest expense.

Conclusion

The purpose of using SBA loans and equipment leases is to access capital and preserve the franchisee’s liquid assets. A common goal is to borrow money at a cost that is less than the business profit percentage. For example, if a $100,000 equipment lease provides a 12% return to the lessor and an $150,000 SBA working capital loan has a 6.5% interest rate, the business owners will be borrowing $250,000 at approximately a 8.9% blended interest rate. Assuming the business operates at a 15% profit margin, the franchisee is accessing capital at a cost less than the projected operating profit margin!

In conclusion, equipment leases and SBA Express loans are complementary products that will enable an entrepreneur with good personal credit to finance the opening and expansion of a franchise. The best part about this financing combination of a SBA Express loan & equipment lease is that the collateral is your business assets… not your home … just your business assets!

Paul Bosley, Managing Member

Business Finance Depot

Toll Free (800) 788-3884
Cell Phone (561) 702-5505
paul@businessfinancedepot.com
www.businessfinancedepot.com

Posted on

Financing Options for Fitness Franchisees of All Sizes

Even though franchisors offer a lot of guidance to their franchisees, it’s best for franchisees to know all their financing options when it comes to starting up their gym, expanding their business or refreshing equipment.

Paul Bosley – Business Finance Depot | Nov 16, 2017

CONTENT BROUGHT TO YOU BY: Business Finance Depot

Obtaining financing can be a scary process for fitness business operators, whether or not they have experience with it. To help take the unknown out of the process, here is some information for fitness franchisees who need financing.

Financing Franchises Costing $350,000 or Less

In 2014, the Small Business Administration (SBA) introduced the Small Loan Advantage loan program that some lenders refer to as the SBA Express loan. After the recession of 2008, many homeowners lost their real estate equity which is used as collateral requirement for a SBA 7(a) loan approval in most cases. Consequently, many perspective borrowers were unable to secure financing because they lack the equity in their home required to collateralize their loan request. The SBA Express loan is capped at $150,000 to limit the lender’s risk since the borrower’s real estate collateral is not required and business assets are used to collateralize the SBA Express loan. Since the collateral used to secure an equipment lease is the equipment being financed and the collateral for the SBA Express loan is the equipment needed to operate the business, these two debt financing products are compatible.

Capital Leases – Leasing Equipment to Own
The most common financing option for fitness equipment is a capital lease. The main purpose of a capital lease is to finance the equipment purchase while preserving the owner’s working capital. Franchisees can finance the purchase of their proprietary equipment, security systems, computer hardware and software, flooring, outdoor signage and other tangible items needed to run the business using an equipment lease. The owner(s) are required to personally guarantee equipment lease. The required down payment ranges from a lease payment up to 20 percent of the amount financed. Lease documentation fees may range from $95 to $495. Repayment terms typically range from 12 months up to 60 months. All payments are tax deductible, so these payments will lower business’s taxable income and, in turn, tax liability. Since the plan is to keep their equipment long term, a typical capital lease offers a $1.00 end of term purchase option.

Small Business Administration (SBA) Express Working Capital Loan
This government-backed loan is designed to provide up to $150,000 of working capital to support the company until the business generates positive cash flow. The loan process is 90 days to complete before the loan is funded. The SBA Express loan approval requirements are good personal credit and some liquid assets. The loan process requires attention to detail. If the use of the loan funds is to finance a new location, the loan can be approved in advance; however, the funds will not be distributed by the bank until the new location has received a certificate of occupancy. This insures that the money will be used to operate the new business and will not be used to pay for build-out expenses. The interest rate for this loan is calculated by starting with the prime rate as published in the Wall Street Journal. Currently that rate is 4.25 percent. The bank charges a 2.75 percent risk premium on this loan so the interest rate is 7 percent now. The repayment term is 10 years, and there is no pre-payment penalty so if the franchisee is extremely profitable, the loan can be prepaid to save interest expense.

This insures that the money will be used to operate the new business and will not be used to pay for build-out expenses. The interest rate for this loan is calculated by starting with the prime rate as published in the Wall Street Journal. Currently that rate is 4.25 percent. The bank charges a 2.75 percent risk premium on this loan so the interest rate is 7 percent now. The repayment term is 10 years, and there is no pre-payment penalty so if the franchisee is extremely profitable, the loan can be prepaid to save interest expense.

In conclusion, equipment leases and SBA Express loans are complementary products that will enable an entrepreneur with good personal credit to finance the opening and expansion of a franchise. The best part about this financing combination of an SBA Express loan and equipment lease is that the collateral is your business assets, not your home.

Financing Franchises Costing $350,000 or More
The SBA 7(a) loan will provide financing ranging from 70 percent to 90 percent of the total project costs, which typically includes the equipment needed to operate your business, organization costs, location buildout, deposits, inventory, operating working capital and franchise fees. The owners’ equity injection ranges from 10 percent to 30 percent of the total project costs and cannot be borrowed money, such as a home equity loan. The borrowers must provide their resume(s) demonstrating industry experience, transferable management skills and/or related education. The collateral for the loan includes all business assets. This loan often requires additional collateral, which is typically residential real estate, only up to the loan dollar amount. Good personal credit is required.

The loan repayment term is 10 years. Prepayment penalties typically range from 1 percent to 4 percent over the initial term period. The interest rate is typically prime rate as published in the Wall Street Journal (4.25 percent) plus a risk premium typically 2.75 percent, so the current rate offered is 7 percent. Closing costs are approximately 3 percent of the loan amount and are usually added to the loan amount.

Real Estate Acquisition
The SBA loan will finance up to 90 percent of the real estate acquisition cost. The owners’ equity injections are typically 10 percent of the acquisition cost of the real estate and cannot be borrowed money, such as a home equity loan. The business must occupy at least 50 percent of the useable space, which provides an opportunity to lease out up to 49 percent of the usable space. The collateral is real estate being purchased. Good personal credit is required. The loan repayment term ranges from 20 to 25 years and is fully amortized with no balloon payment. The interest rate is calculated starting with the prime rate (4.25 percent) plus a risk premium, which will vary based upon the appraisal and the strength of the borrower. The closing cost is typically 3 percent of the loan amount added to the amount financed at closing. The timing to close is 90 days and varies with bank work load, time for real estate appraisal and borrower responsiveness.

There are many benefits of the SBA 7(a) program to finance your business. You will have only one monthly debt payment amortized over the longest repayment term available with no significant prepayment penalty. The use of funds is nearly unlimited to any legitimate business purpose. Since the SBA 7(a) loan is backed by the federal government, it offers the lowest APR available. Consequently, you should consider this form of financing for the wide variety of uses that this flexible loan product offers for business financing.

BIO
Paul Bosley is managing member of the Business Finance Depot. He can be reached toll free at (800) 788-3884 or by email at paul@businessfinancedepot.com. Find out more at www. businessfinancedepot.com.

Posted on

Financing Options for Fitness Franchisees of All Sizes

Obtaining financing can be a scary process for fitness business operators, whether or not they have experience with it. To help take the unknown out of the process, here is some information for fitness franchisees who need financing.

Financing Franchises Costing $350,000 or Less

In 2014, the Small Business Administration (SBA) introduced the Small Loan Advantage loan program that some lenders refer to as the SBA Express loan. After the recession of 2008, many homeowners lost their real estate equity which is used as collateral requirement for a SBA 7(a) loan approval in most cases. Consequently, many perspective borrowers were unable to secure financing because they lack the equity in their home required to collateralize their loan request. The SBA Express loan is capped at $150,000 to limit the lender’s risk since the borrower’s real estate collateral is not required and business assets are used to collateralize the SBA Express loan. Since the collateral used to secure an equipment lease is the equipment being financed and the collateral for the SBA Express loan is the equipment needed to operate the business, these two debt financing products are compatible.

Capital Leases – Leasing Equipment to Own

The most common financing option for fitness equipment is a capital lease. The main purpose of a capital lease is to finance the equipment purchase while preserving the owner’s working capital. Franchisees can finance the purchase of their proprietary equipment, security systems, computer hardware and software, flooring, outdoor signage and other tangible items needed to run the business using an equipment lease. The owner(s) are required to personally guarantee equipment lease. The required down payment ranges from a lease payment up to 20 percent of the amount financed. Lease documentation fees may range from $95 to $495. Repayment terms typically range from 12 months up to 60 months. All payments are tax deductible, so these payments will lower business’s taxable income and, in turn, tax liability. Since the plan is to keep their equipment long term, a typical capital lease offers a $1.00 end of term purchase option.

Small Business Administration (SBA) Express Working Capital Loan

In conclusion, equipment leases and SBA Express loans are complementary products that will enable an entrepreneur with good personal credit to finance the opening and expansion of a franchise. The best part about this financing combination of an SBA Express loan and equipment lease is that the collateral is your business assets, not your home.

Financing Franchises Costing $350,000 or More

The loan repayment term is 10 years. Prepayment penalties typically range from 1 percent to 4 percent over the initial term period. The interest rate is typically prime rate as published in the Wall Street Journal (4.25 percent) plus a risk premium typically 2.75 percent, so the current rate offered is 7 percent. Closing costs are approximately 3 percent of the loan amount and are usually added to the loan amount.

Real Estate Acquisition

The SBA loan will finance up to 90 percent of the real estate acquisition cost. The owners’ equity injections are typically 10 percent of the acquisition cost of the real estate and cannot be borrowed money, such as a home equity loan. The business must occupy at least 50 percent of the useable space, which provides an opportunity to lease out up to 49 percent of the usable space. The collateral is real estate being purchased. Good personal credit is required. The loan repayment term ranges from 20 to 25 years and is fully amortized with no balloon payment. The interest rate is calculated starting with the prime rate (4.25 percent) plus a risk premium, which will vary based upon the appraisal and the strength of the borrower. The closing cost is typically 3 percent of the loan amount added to the amount financed at closing. The timing to close is 90 days and varies with bank work load, time for real estate appraisal and borrower responsiveness.

BIO

Paul Bosley is managing member of the Business Finance Depot. He can be reached toll free at (800) 788-3884 or by email at paul@businessfinancedepot.com. Find out more at www. businessfinancedepot.com.

Posted on

SBA 7(a) Loans are the Most Versatile Loan Product

Do you want to open a new franchise and need financing to do it?

Do you want to expand your existing business by opening a new location?

Do you want to refinance your business debt & lower your monthly overhead?

Are you tired of paying rent to a landlord? Do you want to own the real estate where you operate your business?

If you answered “yes” to any of these questions, the Small Business Administration (SBA) 7(a) loan may be your answer. This national loan program designed by the federal government is offered by many national lenders can be used for a wide variety of business purposes. The SBA offers loan guarantees ranging from 50% up to 90% of the loan amount to reduce the lender’s risk which, in turn, makes securing an approval more likely. The following information is being provided in outline form to simplify understanding the qualifications and the variety of uses for this flexible loan program.

The SBA 7(a) Loan Program’s Four (4) Main Uses

1. Finance a Start -up Business

  • The SBA 7(a) Loan will finance up to 80% of the total project costs which typically includes the equipment needed to operate your business, organization costs, location buildout, deposits, inventory, operating working capital and franchise fees.
  • The owners’ equity injection is typically at least 20% of the total project costs and cannot be borrowed money such as a home equity loan.
  • The borrowers must provide their resume(s) demonstrating industry experience, transferable management skills and/or related education

2. Finance the Expansion of an Existing Businesses

  • Same list as a startup business above
  • Business tax returns must be able to support the new debt.

3. Debt Consolidation for an Existing Business

  • The funds from the loan are used to refinance existing business debt which can include existing equipment leases and loans of all types.
  • The refinancing can include existing credit card debt only if the debt was incurred for business purposes and can be easily identified as business debt.
  • The resulting monthly payment must reduce the total monthly payments of all debt being consolidated by 10%.

Common Criteria, Terms and Conditions for the Three (3) Uses Listed Above

  • The collateral for the loan is all business assets.
  • Addition collateral is often required which is typically residential real estate only up to the loan $ amount.
  • Good personal credit typically 675 credit score or above
  • 10-year loan repayment term
  • Prepayment penalties typically range from 1-4% over the initial term period
  • The interest rate is typically prime rate as published in the Wall Street Journal (4.25%) plus a risk premium typically 2.75% = 7%.
  • Closing Costs are approximately 3% of loan amount and are usually added to the loan amount.
  • Timing to close – 90 days which varies with the bank work load & the responsiveness of the borrower. Real Estate – Commercial Mortgages
  • The SBA loan will finance up to 90% of the real estate acquisition cost.
  • The owners’ equity injections is typically 10% of the acquisition cost of the real estate and cannot be borrowed money such as a home equity loan.
  • The business must occupy at least 50% of the useable space which provides an opportunity to lease out up to 49% of the useable space.
  • Terms and Conditions:
    • The collateral is real estate being purchased
    • Good personal credit typically 675 credit score or above
    • Loan Repayment Term ranges from 20-25 years
    • Fully amortized loan with no balloon payment
    • Prepayment penalties – range from 1-4% over the initial term period
    • Interest Rate – Prime (4.25%) plus a risk premium of no more than 2.75%. The risk premium will vary based up the appraisal and the strength of the borrower.
    • Closing Cost – Typically 3% of loan amount added to the amount financed at closing Timing to close – 90 days. Varies with bank work load, time for real estate appraisal & borrower responsiveness.
    • Timing to close – 90 days which varies with the bank work load & the responsiveness of the borrower.

Conclusion

There are many benefits of the SBA 7(a) program to finance your business. You will have only one monthly debt payment amortized over the longest repayment term available with no significant prepayment penalty. The use of funds is nearly unlimited to any legitimate business purpose. Since the SBA 7(a) loan is backed by the federal government, it offers the lowest APR available. Consequently, we recommend you strongly consider this form of financing for the wide variety of uses that this flexible loan product offers for business financing.

Posted on

The Best Working Capital Loan Available Today

In 2014, the Small Business Administration (SBA) introduced the Small Loan Advantage loan program often referred to as the SLA loan. One lender created an “SBA Express Loan” and capped the loan request amount at $150,000 to limit the risk since real estate collateral is not required. Instead, only business assets are used to collateralize the SBA Express Loan.  The main approval requirements are good personal credit & a reasonable amount of liquid assets which includes $ in checking, savings and retirement accounts as well as marketable securities.  New and existing business owners are eligible for this unique loan product.

Small Business Administration (SBA) Express Working Capital Loan

This government backed loan is designed to provide working capital ranging from $20,000 to $150,000 for start-ups and existing businesses.  The main purpose of this loan is to provide the funds necessary to support the company until the business generates positive cash flow. The loan process takes between 30 to 90 days to complete before the loan funds.  The SBA loan process requires attention to detail to complete the application and contingency requirements.

The interest rate for this loan is calculated by starting with the prime rate as published in the Wall Street Journal which is currently 4.25%. The bank charges a risk premium ranging from 2.75% to 4.75% on this loan so the interest rate will range from 7% to 9% depending upon the loan amount. The larger the loan amount, the lower the interest rate. For example, a $25,000 loan has an interest rate of 9% while a $150,000 loan has an interest rate of 7%.  This loan has a variable rate which will change when the Federal Board of Governors raises or lowers the rates.  The most recent .25% rate increase raised the SBA loan payments on a $150K loan by approximately $18.00 per month.  All SBA loans have closing costs which are typically 3% of the loan amount.   The loan’s repayment term is 10 years and there is no pre-payment penalty so if the business is profitable, the loan can be prepaid to save interest expense.

A Wide Variety of Business Uses

  • Financing a New Business – If the use of the loan funds is to help finance a new business, the loan can be approved in advance to the business’s opening, however the funds will not be distributed by the bank until the new location has received a certificate of occupancy.  This insures that the money will be used to operate the new business & will not be used to pay for build out construction costs.
  • Consolidating Existing Debt for an Existing Business – Many existing businesses have turned to alternate lenders to provide financing after the financial crisis because banks have tightened their lending standards.  If a business has high interest debt, this loan product is perfect for refinancing existing business debt if the resulting monthly loan payment be at least 10% lower than the current debt repayments. This is almost a given in all cases because the interest rate is 7-9% and the repayment term is 10 years. The best part is that existing businesses should fund in 15 days or less!
  • $25,000 SBA Working Capital Loan for New and Existing Businesses – The $25,000 loan amount deserves its own paragraph because it is a totally unsecured loan!  No business or personal assets are required to be pledged as collateral for this loan!  It is a quick process that can take less than a month to close if the business owner focuses on the required forms. There is absolutely no competitive product available to a new or existing business owners now!  In short, this is the best product on the market today for a $25,000 business loan that can be used for any business purpose!

The purpose of using SBA loans is to access other people’s money (OPM) and preserve the business owner’s capital.  The goal is to borrow the money at a cost that is less than the business profit percentage.  For example, a SBA working capital loan has a 7% interest rate.  Assuming the business operates at a 15% profit margin, the business owner is using OPM at a cost less than half of your anticipated return on capital!  The best part about the SBA Express loan is that the collateral is your business assets… not your home … just your business assets!

Paul Bosley is a Managing Member of the Business Finance Depot.

www.businessfinancedepot.com

Posted on

The Perfect Franchise Financing Combination

When an entrepreneur is considering purchasing a franchise, various financing options are considered and the most appropriate financing product(s) is typically selected. For example, an equipment lease is often chosen for financing new equipment needed to run the business. Another option is to finance the entire business with a SBA 7(a) loan. A 3rd option is to self-fund using funds saved in the entrepreneur’s retirement account using the R.O.B.S. program established by the IRS. It is very unusual when two financing products are complementary & can be selected jointly to finance a new business. With the introduction of the SBA Express loan, this changed because an SBA Express loan perfectly complements an equipment lease for financing a new franchise and the expansion of an existing franchise.

In 2014, the Small Business Administration (SBA) introduced the Small Loan Advantage loan program some lenders refer to as the SBA Express loan. After the “The Great Recession”, many homeowners lost their real estate equity which is used as collateral requirement for a SBA 7(a) loan approval in most cases. Consequently, many perspective borrowers were unable to secure financing because they lack the equity in their home required to collateralize their loan request. The SBA Express loan is capped at $150,000 to limit the lender’s risk since the borrower’s real estate collateral is not required and business assets are used to collateralize the SBA Express loan.

Since the collateral used to secure an equipment lease is the equipment being financed and the collateral for the SBA Express loan is the equipment needed to operate the business, these 2 debt financing products are compatible! Furthermore, since the underlying concept of the SBA Express loan is to provide working capital, financing the equipment needed to operate the business provides the franchise owner more working capital so the underlying reason for both products is the same.

Capital Leases – Leasing Equipment to Own

The most common financing option available for franchises using equipment leasing is a capital lease. The main purpose of a capital lease is to finance the equipment purchase while preserving the owner’s working capital. Franchisees can finance the purchase of their proprietary equipment, security systems, computer hardware & software, flooring, outdoor signage and other tangible items needed to run the business using an equipment lease. The owner(s) are required to personally guarantee equipment lease.

The required down payment ranges from a lease payment up to 20% of the amount financed. Lease documentation fees may range from $95 to $495. Repayment terms typically range from 12 months up to 60 months. All payments made are tax deductible so the payments will lower business’s taxable income and, in turn, tax liability. Since the plan is to keep their equipment long term, a typical capital lease offers a $1.00 end of term purchase option. In short, an equipment lease is used to finance the purchase of all equipment needed to manage the franchise; thus, preserving the franchisee’s working capital.

Small Business Administration (SBA) Express Working Capital Loan

This government backed loan is designed to provide working capital ranging from $25,000 up to $150,000 for start-ups and existing businesses. The main purpose of this loan is to provide the funds necessary to support the company until the business generates positive cash flow. The loan process takes 60 – 90 days to complete on average before the loan is funded. The SBA Express loan approval requirements are good personal credit & some liquid assets and the loan process requires attention to detail. If the use of the loan funds is to finance a new location, the loan can be approved in advance, however the funds will not be distributed by the bank until the new location has received a certificate of occupancy. This insures that the money will be used to operate the new business & will not be used to pay for build out expenses.

The interest rate for this loan is calculated by starting with the prime rate as published in the Wall Street Journal which is currently 4.25%. The bank charges a 2.75% risk premium on this loan so the interest rate is 7% now. This is a variable rate loan which changes quarterly when the Fed Board of Governors decides to raise or lower the prime rate. The most recent .25% rate increase implemented at the end of last year raised the SBA loan payments on a $150,000 loan by approximately $18.00 per month. The repayment term is 10 years and there is no pre-payment penalty so if the franchisee is extremely profitable, the loan can be prepaid to save interest expense.

Conclusion

The purpose of using SBA loans and equipment leases is to access capital and preserve the franchisee’s liquid assets. A common goal is to borrow money at a cost that is less than the business profit percentage. For example, if a $100,000 equipment lease provides a 12% return to the lessor and an $150,000 SBA working capital loan has a 6.5% interest rate, the business owners will be borrowing $250,000 at approximately a 8.9% blended interest rate. Assuming the business operates at a 15% profit margin, the franchisee is accessing capital at a cost less than the projected operating profit margin!

In conclusion, equipment leases and SBA Express loans are complementary products that will enable an entrepreneur with good personal credit to finance the opening and expansion of a franchise. The best part about this financing combination of a SBA Express loan & equipment lease is that the collateral is your business assets… not your home … just your business assets!

Paul Bosley, Managing Member

Business Finance Depot

Toll Free (800) 788-3884

Cell Phone (561) 702-5505

paul@businessfinancedepot.com

www.businessfinancedepot.com

Posted on

The Most Versatile Loan Product

Do you want to expand your business or open a new location? Do you want to refinance your existing debt to lower your monthly overhead? Are you tired of paying rent to a landlord and would rather own the real estate you operate your business? Do you want to open a new franchise and need financing to do it?

If you answered “yes” to any of these questions, the Small Business Administration (SBA) 7(a) loan may be your answer.

This national loan program designed by the federal government is offered by many national lenders and can be used for a wide variety of business purposes. The SBA offers loan guarantees ranging from 50% up to 90% of the loan amount to reduce the lender’s risk which, in turn, makes securing an approval more likely. The following information is being provided in outline form to simplify the features of the variety of uses for this loan program.

The SBA 7(a) Loan Program’s Four (4) Main Uses:

  1. Finance a Start -up Business
  • The SBA 7(a) Loan will finance up to 80% of the total project costs which typically includes the equipment needed to operate your business, organization costs, buildout, deposits, inventory, operating working capital and franchise fees.
  • The owners’ equity injection must be at least 20% of the total costs and cannot be borrowed money such as a home equity loan.
  • Good resume showing experience, transferable skills and/or related education
  1. Finance the Expansion of an Existing Businesses
  • Use of Funds to finance up to 80% of the total costs which typically includes the equipment needed to operate the business, working capital, buildout, deposits and franchise fees.
  • Owners’ Equity injection must be at least 20% of the total costs and cannot be borrowed money such as a home equity loan.
  1. Debt Consolidation for an Existing Business
  • The funds are used to refinance existing business debt which can include existing equipment leases and loans of all types.
  • The refinancing can include existing credit card debt only if the debt was incurred for business purposes and can be easily identified.
  • The resulting monthly payment must reduce the total monthly payments of all debt be consolidated by 10%.

Common Criteria, Terms and Conditions for the Three (3) Uses Listed Above

  • The collateral for the loan is all business assets. Addition collateral is often required which is typically residential real estate only up to the loan $ amount.
  • Good personal credit typically 675 credit score or above10-year loan repayment term.
  • Prepayment penalties typically range from 1-4% over the initial term period.
  • The interest rate is typically prime rate as published in the Wall Street Journal (4.25%) plus a risk premium typically 2.75% = 7%.
  • Closing Costs are typically 3% of loan amount. The closing costs are typically added to the amount being financed.
  • Timing to close – 90 days which varies with the bank work load & the responsiveness of the borrower. Since it takes time to close the SBA 7(a) loan, advanced planning and attention to detail is required.
  1. Real Estate – Commercial Mortgages 
    • The SBA loan will finance up to 90% of the real estate acquisition cost.
    • The owners’ equity injections is at least 10% of the acquisition cost of the real estate and cannot be borrowed money such as a home equity loan.
    • The business must occupy at least 50% of the useable space which provides an opportunity to lease out up to 49% of the useable space.
    • Terms and Conditions:
    • The collateral is real estate being purchased
    • Good personal credit typically 675 credit score or above
    • Loan Repayment Term ranges from 20-25 years
    • Fully amortized loan with no balloon payment
    • Prepayment penalties – range from 1-4% over the initial term period
    • Interest Rate – Prime (4.25%) plus a risk premium typically 1.75% = 6%
    • Closing Cost – Typically 3% of loan amount added to the amount financed at closing Timing to close – 90 days. Varies with bank work load, time for real estate appraisal & borrower responsiveness. Since it takes time to close the SBA 7(a) loan, advanced planning and attention to detail is required.

There are many benefits of using the SBA 7(a) program to finance your business.  There is only one monthly debt payment which is amortized over the longest repayment term available with no significant prepayment penalty.  The use of funds is nearly unlimited to any legitimate business purpose. Since the SBA 7(a) loan is backed by the federal government, it offers the lowest APR available. Consequently, it is our recommendation that you strongly consider this form of financing for the wide variety of uses that this flexible loan product offers for business financing.

Paul Bosley is a Managing Member of Business Finance Depot. 

www.businessfinancedepot.com

Posted on

The Most Versatile Commercial Loan Product

Do you want to expand your business or open a new location? Do you want to refinance your existing debt to lower your monthly overhead? Are you tired of paying rent to a landlord and would rather own the real estate you operate your business? Do you want to open a new franchise and need financing to do it?

If you answered “yes” to any of these questions, the Small Business Administration (SBA) 7(a) loan may be your answer.

This national loan program designed by the federal government is offered by many national lenders and can be used for a wide variety of business purposes. The SBA offers loan guarantees ranging from 50% up to 90% of the loan amount to reduce the lender’s risk which, in turn, makes securing an approval more likely. The following information is being provided in outline form to simplify the features of the variety of uses for this loan program.

The SBA 7(a) Loan Program’s Four (4) Main Uses:

  1. Finance a Start -up Business
  • The SBA 7(a) Loan will finance up to 80% of the total project costs which typically includes the equipment needed to operate your business, organization costs, buildout, deposits, inventory, operating working capital and franchise fees.
  • The owners’ equity injection must be at least 20% of the total costs and cannot be borrowed money such as a home equity loan.
  • Good resume showing experience, transferable skills and/or related education
  1. Finance the Expansion of an Existing Businesses
  • Use of Funds to finance up to 80% of the total costs which typically includes the equipment needed to operate the business, working capital, buildout, deposits and franchise fees.
  • Owners’ Equity injection must be at least 20% of the total costs and cannot be borrowed money such as a home equity loan.
  1. Debt Consolidation for an Existing Business
  • The funds are used to refinance existing business debt which can include existing equipment leases and loans of all types.
  • The refinancing can include existing credit card debt only if the debt was incurred for business purposes and can be easily identified.
  • The resulting monthly payment must reduce the total monthly payments of all debt be consolidated by 10%.

Common Criteria, Terms and Conditions for the Three (3) Uses Listed Above

  • The collateral for the loan is all business assets. Addition collateral is often required which is typically residential real estate only up to the loan $ amount.
  • Good personal credit typically 675 credit score or above10-year loan repayment term.
  • Prepayment penalties typically range from 1-4% over the initial term period.
  • The interest rate is typically prime rate as published in the Wall Street Journal (4.25%) plus a risk premium typically 2.75% = 7%.
  • Closing Costs are typically 3% of loan amount. The closing costs are typically added to the amount being financed.
  • Timing to close – 90 days which varies with the bank work load & the responsiveness of the borrower. Since it takes time to close the SBA 7(a) loan, advanced planning and attention to detail is required.
  1. Real Estate – Commercial Mortgages
    • The SBA loan will finance up to 90% of the real estate acquisition cost.
    • The owners’ equity injections is at least 10% of the acquisition cost of the real estate and cannot be borrowed money such as a home equity loan.
    • The business must occupy at least 50% of the useable space which provides an opportunity to lease out up to 49% of the useable space.
    • Terms and Conditions:
    • The collateral is real estate being purchased
    • Good personal credit typically 675 credit score or above
    • Loan Repayment Term ranges from 20-25 years
    • Fully amortized loan with no balloon payment
    • Prepayment penalties – range from 1-4% over the initial term period
    • Interest Rate – Prime (4.25%) plus a risk premium typically 1.75% = 6%
    • Closing Cost – Typically 3% of loan amount added to the amount financed at closing Timing to close – 90 days. Varies with bank work load, time for real estate appraisal & borrower responsiveness. Since it takes time to close the SBA 7(a) loan, advanced planning and attention to detail is required.

There are many benefits of using the SBA 7(a) program to finance your business.  There is only one monthly debt payment which is amortized over the longest repayment term available with no significant prepayment penalty.  The use of funds is nearly unlimited to any legitimate business purpose. Since the SBA 7(a) loan is backed by the federal government, it offers the lowest APR available. Consequently, it is our recommendation that you strongly consider this form of financing for the wide variety of uses that this flexible loan product offers for business financing.

Paul Bosley is a Managing Member of Business Finance Depot. 

www.businessfinancedepot.com