IS a sba loan a good solution for me?

Are you a small business owner or entrepreneur looking for financing, but not sure where to start or if you should consider a Small Business Administration (SBA) loan?  Often times, businesses struggling to obtain conventional financing with a bank are ideal candidates for a SBA loan product.

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The SBA 7(a) loan product is the most flexible product offered by the SBA. This loan product is versatile and can help businesses with the following:

  • obtain working capital
  • purchase owner-occupied commercial real estate
  • fund equipment purchases
  • buy a business finance inventory
  • cover business start-up expenses

There are two main reasons these loans are attractive:

The SBA will not decline a deal for a lack of collateral.

Collateral are assets a borrower pledges a lender to secure a loan. If the borrower is unable to repay the loan, the lender can take possession of the collateral to reduce losses. Not having enough collateral to secure a loan is a common problem for small businesses trying to obtain financing. The SBA 7(a) loan product provides the bank with a guaranty from the Small Business Administration, typically 75% of the loan amount. This guaranty mitigates some collateral risk for many lenders, which in turn makes them more willing to lend to borrowers that do not have enough collateral to fully secure their loan.

They improve cash flow by allowing for lower down payments and longer terms.

A hurdle many businesses face during the financing process is having enough cash on hand to cover the required down payments. If you are short on cash or wish to use your cash for other business purposes, the SBA 7(a) loan product may be able to help you. To obtain a loan to purchase equipment or commercial real estate, a bank typically requires the borrower to put 20% to 25% down. With a 7(a) loan, you can purchase commercial real estate with as little as 10% down (or less in certain situations.) In order to qualify, the real estate must be at least 51% owner-occupied.

This loan product allows a business to lengthen the term of the loan. For real estate the term can go up to 25 years and for all other uses the SBA allows banks to go up to a 10-year term. These longer terms can provide significant cash flow savings. The 7(a) also permits you to finance all the costs associated with obtaining the loan such as appraisal fees, title insurance and environmental reports which keeps cash on hand for other business purposes.

Things to Consider:

While the SBA 7(a) loan product does make financing possible for small businesses, it is important to keep in mind that SBA loan products typically have higher interest rates. There is also a required guaranty fee that is passed on to the SBA which cannot be waived. Talking with a banker experienced in the SBA lending process is your best bet to see what makes the most sense for your specific situation. The SBA loan products allow borrowers to obtain financing which they may never get otherwise.

Contact me to see if your business may be a good fit for a SBA 7(a) loan.

Jeremy Shore

Jeremy Shore

Vice President
SBA Lending


 Jeremy Shore, Vice President of SBA Lending at The Business Bank of St. Louis, is the bank’s lead SBA lender. He works with a variety of entrepreneurs and small business owners who might otherwise not qualify for conventional financing to find flexible and creative lending solutions. Jeremy has more than a decade of banking experience and has worked in all aspects of commercial lending. He gravitated towards SBA lending because he enjoys working with this customer base and helping entrepreneurs and small business owners achieve their dreams.