What are the benefits and downsides of obtaining an SBA loan?

The U.S. Small Business Administration (SBA) helps small businesses plan, launch, manage, and grow in many ways, including free business counseling and SBA-guaranteed business loans. SBA loans assist small businesses in Maine and New Hampshire obtain crucial funding while also reducing the risk of lenders.

Brief SBA Loan Descriptions

7(a) Loans

This is SBA’s primary business loan program as it provides guarantees to lenders, like Norway Savings Bank, that allow us to offer financial help for acquiring, refinancing, or improving real estate and buildings; short- and long-term working capital; refinancing current business debt; the purchase and installation of machinery and equipment; the purchasing of furniture, fixtures, and supplies; and changes of ownership (complete or partial). Key eligibility factors are based on what the business does to receive its income, its credit history, and where the business operates. Lenders help you figure out which type of loan is best suited for your needs.

504 Loans

The 504 Loan program provides long-term, fixed rate financing for major assets that promote business growth and job creation. To be eligible for a 504 loan, your business must operate as a for-profit company in the United States or its possessions, have a tangible net worth of less than $20 million, have an average net income of less than $6.5 million after federal income taxes for the two years preceding your application, possessing a feasible business plan, and the ability to repay the loan. A 504 Loan can be used to promote business growth and job creation; improve existing buildings, land, and parking lots; address machinery and equipment issues and other uses. 

Microloans

The Microloan program provides loans up to $50,000 to help small businesses and certain nonprofit childcare centers start up and expand. The average microloan is about $13,000. Microloans can be used for a variety of purposes that help small businesses expand like working capital, inventory, supplies, furniture, fixtures, machinery, and equipment.

SBA guaranteed loans provide funding opportunities for businesses that may not qualify for traditional loans due to limited collateral or short operating histories, while timely repayment of an SBA guaranteed loan can help establish or improve the credit profile of a small business, making it easier to secure future financing.

No matter the loan category that applies to your business and situation, there are benefits and downsides to obtaining an SBA loan.

Local Flexibility and Fairness

Community banks also concentrate on looking beyond the numbers on a page and squarely at the people behind them. Whether it’s a startup or a seasonal business commonly found in Maine and New Hampshire, local banks are ready and willing to work with you to pursue your financial goals . In many cases, local banks can offer loans to applicants who might not meet the standardized requirements of a national bank but would offer something special or significant in Maine and New Hampshire.

As mentioned earlier, the loan approval process works fluidly at a community bank but also with more flexibility, considering the unique circumstances that surround your particular business. With fewer layers of bureaucracy, decision-making is streamlined and procedures can be adapted to individual needs. Local banks work directly with businesses and complete full assessments, informed by a deep knowledge of the Maine and New Hampshire economies and their nuances.

Community banks can also offer flexible repayment options that take things like fluctuating cash flow and revenue cycles into consideration.

Benefits

• Low Interest Rates – SBA loans offer lower interest rates than conventional business loans as they are partially guaranteed by the government
• Longer Repayment Terms – With an SBA loan, you can spread payments over a longer period which will reduce your monthly payment and improve your cash flow.
• Lower Down Payments – SBA loans require as little as 10% down which makes them accessible for businesses with limited capital.
• Flexibility – As described above, SBA loans offer a wide range of uses, including working capital. 
• Support for “Start-Ups”– SBA loans often support business just starting out with special consideration given to businesses owned and/or operated by veterans, women, and minority groups.

Downsides

• Slightly More Involved Application Process -Depending on the type of loan you will be seeking, SBA loans require detailed documentation, including complete business plans, financial statements, tax returns, and in some cases, personal credit histories.
• Personal Guarantee – Similar to most other business loans, business owners must personal guarantee the loan, meaning personal assets could be at risk if your business fails.
• Possibility of Collateral – The bank and SBA might seek personal assets in addition to business assets to collateralize a loan.
• Eligibility Requirements – SBA loans do require a number of qualification measures be met, including a good credit history and a demonstrated ability to repay loans or other debts.
• Prepayment Penalties – Prepayment penalties may be assessed by the SBA if the maturity of the loan is 15 years or longer.

SBA Loans and Norway Savings Bank

Lenders at Norway Savings Bank have proven experience with SBA loans and working with small businesses in Maine and New Hampshire in helping our customers examine what options might be best for their financial goals. Remember, your business is unique, so it’s crucial to evaluate your specific needs and consult with NSB lenders to determine the proper course of action for you. We have the privilege of working alongside businesses of all sizes, assisting every step of the way, and would love to help you. Check out Business Banking, Loan Solutions, or let’s talk when you’re ready!