SBA 7a loan programs provide financing and flexibility to small businesses
Regardless the strength of the general business economy, companies across the country and throughout the Chicago metropolitan area are always looking for ways to strengthen their foothold as well as their balance sheets.
Even though small businesses may not have the clout of much larger companies, they still have a variety of options available to them. SBA's 504 loan program is focused for specific types of loans, like the purchase of real estate and equipment. SBA's 7a loan program offers considerable flexibility.
The 7A loan program allows qualified small businesses to use capital up to $5 million, for working capital, inventory expansion, debt consolidation - both line of credit and business credit card loans, as well as real estate and equipment purchases and refinances.
The SBA 7A lending program is an affordable and flexible lending program with significant benefits for companies that meet a baseline of criteria. To qualify they must be a for profit, US small business; meet certain financial bench marks, including no delinquencies on any debts to the US government; intend to use the loan for sound business purposes; demonstrate a need for the loan; and have an equity position in the business.
The flexibility in how to use the capital can result in substantial payment relief. The growth and expansion of a salt manufacturer and distributor, for example, originally had been funded, in large part, through the use of business credit card debt as well as trade debt. In securing an SBA 7A loan, the company was able to consolidate all of its existing business debt, for a term of 10 years.
The payment relief generated through this refinance represented a savings of approximately 65 percent per month. This had considerable impact and is allowing the company to expand their exporting efforts.
The 7A program is ideally suited for a wide range of small businesses, including those that have been in business for a long period of time as well as startups. Further, the types of business can range from manufacturing firms to entertainment and hospitality businesses.
Recently, we approved a 7A loan that will be used to fund the build-out and startup operations of a new 8,000-square-foot restaurant in Chicago's River North neighborhood. Typically, this type of loan would only be possible with significant equity. However, under the SBA 7a loan program we were able to fund 80 percent of costs.
Another way in which the 7A program provides businesses with financial flexibility is the way in which prepayment penalties are structured. In most cases, the loan terms range from 10 years for leasehold interests and consolidation of debt to 25 years for the purchase of real estate.
With a 10-year SBA 7a loan there is no prepayment penalty. The 25-year loan has only a 3-year prepayment penalty.
The 7A loan is a creative financing tool that provides many small business owners with the financing leverage and flexibility they need to be successful. For a small business, success can be defined in many ways: the ability to expand to another location, secure additional sources of working capital, and to consolidate and/or restructure debt. With this financing in place, businesses can focus on other critical elements of business operations.
• Gabe Beukinga is the recently appointed president of SBA Lending for HomeStar Bank & Financial Services. He has 12 years of SBA lending, executive management and business development experience and has closed more than 500 commercial real estate and business loans, exceeding $1 billion in total financing. Beukinga has been recognized as one of the top SBA lenders in the Country.