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.