| Business owners that are considering an SBA 7a loan | | | | The prepayment penalty is calculated on the amount |
| will enjoy numerous advantages when compared to | | | | that is in excess of 25% of the balance, and is 5% in |
| conventional bank financing. | | | | the 1st year, 3% in the second year, and 1% in the third |
| Higher Leverage - SBA loans typically have down | | | | year. Compared to the typical 5% for 5 years or the |
| payments that are usually only 10% of the entire | | | | 5% step down. So, the borrower could actually pay off |
| project costs. This can greatly lower your overall cash | | | | the entire SBA loan in 3 years and would not have to |
| out-of-pocket. Conventional mortgages often have | | | | pay the prepayment penalty. |
| down payments of 20% or more. Conventional | | | | No Ongoing Debt Service Requirements - Traditional |
| mortgages often do not finance the loan costs, where | | | | banks often want to monitor a borrowers business |
| an SBA-guaranteed loan includes the 3rd party costs | | | | financials on a monthly or quarterly basis (after loan |
| (appraisal, title, processing, etc.) within the loan. | | | | closes) to make sure that the businesses cash flows |
| Longer Terms- 25 year amortization with fixed periods | | | | are still sufficient to meet the minimum debt coverage |
| ranging from 3, 5, 7, 10 years and sometimes 25 years | | | | ratios. If the business net income, does not fit the |
| is available. Conventional mortgages often have | | | | required ratio the bank normally holds the right to call |
| maximum amortization schedules of 15 to 20 years | | | | the borrowers loan (Evan if the borrower is current). |
| which can make cash flow tight during slow periods. In | | | | This monthly monitoring is not normally required on |
| addition fixed periods rarely exceed 5 years. | | | | SBA loans. |
| No Early Balloon Payment- SBA guaranteed loans are | | | | If a Construction Loan, it's a One-time Close - Meaning |
| fully-amortizing, meaning that the pays off by the end | | | | that the borrower will only have to close one loan. In |
| the amortization period. So the borrower does not | | | | contrast, most construction loans are set up as 2 loans |
| have to refinance their loan because of a balloon. Also | | | | - first is the construction piece, than the borrower |
| no payable on demand clause, like most conventional | | | | would need to secure a second loan (take out) to |
| mortgages have. | | | | refinance the first. The borrower would normally be |
| Below Market Prepayment Penalty- If the term is less | | | | required to pay for a second set of 3rd party fees, |
| than 15 years the borrower does not have a prepay. If | | | | etc. Without a second closing, the borrower begins the |
| the term is more than 15 years than it is a year 3 year | | | | amortization schedule (repayment) after construction is |
| prepay, compared to most that are over 5 years. In | | | | completed. You only have to sign one set of |
| addition the borrower is allowed to pay up to 25% of | | | | documents, work with only one lender, and attend only |
| the balance without incurring the prepayment penalty. | | | | one loan closing. |