SBA 7A loans are one of the best finance solutions to business owners, in the market today. There are two primary reasons for this – value and viability.
As commercial real estate values continue to decline the SBA 7A loan offers the highest financing available in the business, at 85{919468b76a1b111b1791bdf3e51426d8562c963af300c016649515c15309dd6c}. Conventional bank loans in contrasts are normally capped at 65{919468b76a1b111b1791bdf3e51426d8562c963af300c016649515c15309dd6c} loan to value.
Say you bought an office building 5 years ago for $1,000,000. You put 30{919468b76a1b111b1791bdf3e51426d8562c963af300c016649515c15309dd6c} down and started off with a $700,000 loan amount. Now 5 years later your existing loan is ballooning/adjusting and you need to investigate what options are out there.
However, you quickly learn that your property has declined in value to $800,000, and your existing balance has only been paid down to $650,000. Your existing loan to value is 81{919468b76a1b111b1791bdf3e51426d8562c963af300c016649515c15309dd6c}… Your existing bank wants you to pay down the balance to bring it to 65{919468b76a1b111b1791bdf3e51426d8562c963af300c016649515c15309dd6c} and no other conventional lenders will consider your request. However, the SBA 7A loan will go to 85{919468b76a1b111b1791bdf3e51426d8562c963af300c016649515c15309dd6c} loan to value, so this could be a business life saving deal.
Because the SBA 7A loans are backed, i.e. guaranteed by the government, they are the most reliable loans, in terms of closing in the business today. Many banks for example, are taking loans that fit their conventional guidelines and are pushing the borrowers to take an SBA loan because the bank wants the guarantee.
A year ago, this was not the case. The SBA guarantee comes with additional expense for the bank and much more paperwork/reporting requirements for them as well. Many banks wanted nothing to do with the SBA.
Borrowers need to keep in mind that the SBA does not lend money. They guarantee the banks they do lend. There is a wide level of flexibility between one bank to another, in terms of what is considered a fundable loan.
Not all SBA lenders are the same! Some are very conservative, others are still aggressive. Being declined by one does not mean that you are ineligible for an SBA 7a Loan. The key is knowing which sources are still funding loans.
