Articles For Knowledge Sharing
» SBA Loan Program Options For Funding a Storage Facility
SBA Loan Program Options For Funding a Storage Facility
SBA loans are often an good source of small business funding that can be used for acquiring a storage facility or for improving it. Since an SBA loan is secured by the SBA, it has a much lower rate of interest and far better loan terms that a conventional loan. There are two primary types of SBA loans that are utilized for small business funding. These are the SBA 7(a) and SBA 504 loan programs. In most situations, an SBA 7(a) loan is a better choice compared to a 504 loan for financing your storage facility. Listed below are a number of the reasons why a SBA 7(a) loan is better than a SBA 504 loan:
1. SBA 7(a) loans possess much less restrictions in comparison with 504 loans concerning what the financing can be used for when you're acquiring a storage facility or when you are improving it.
7(a) loans are often used to buy real estate, equipment, inventory and goodwill when purchasing self storage units. It can also be used for construction and remodeling of your self storage units. Storage facility owners can also use an SBA 7(a) to supply working capital. In comparison, uses of a 504 loan a lot more limited. SBA 504 loans are only allowed to be utilized to buy long-term fixed assets such as commercial real estate. You may use a 504 loan to acquire equipment. However, anything you purchase will need to have an expected life expectancy of at least 10 years. The Small Business Administration also permits SBA 504 loans to be used for construction, renovation, landscaping and putting in utilities. SBA 504 loans may not be used for obtaining goodwill, inventory or for working capital.
2. In most circumstances, the interest rate on a 7(a) loan will be much better than a 504 loan.
Loan companies are generally more inclined to provide a better interest rate on an SBA 7(a) loan compared to a 504 loan because the SBA guarantees up to 90% of an SBA 7(a) loan and just 40% of a 504 loan. There are SBA 7(a) loans which have either a fixed or variable interest rate. The final interest on a 7(a) loan is something you bargain with your loan provider. The Small Business Administration does, however, set a maximum rate of interest that may be charged on an SBA 7(a) loan. The highest possible rate of interest on a 7(a) loan is calculated by the addition of a base rate to an allowed spread. There are three published rates which can be used to figure out the base rate of a 7(a) loan; a prime rate posted in a US daily newspaper, the London Interbank One Month Prime Rate plus 3% or an SBA Peg Rate. The SBA places limitations on the added spread that lenders may add to this the base rate. For loans with maturities of less than seven years, the SBA permits a maximum spread of not more than 2.25 percent. The highest spread for loans with maturities of seven years or more, is 2.75 percent.
The amount of interest you are charged on a 504 loan is usually much more than an SBA 7(a) loan. The reason for this is due to 50% of the total funding being a conventional loan. The Small Business Administration doesn't put any kind of regulations upon these private loans. As a result, the terms, the rates, the fees and whether the loan has a fixed or a variable rate is totally up to the discretion of the private loan company. However, since there is reduced risk associated with these loans, loan companies usually charge a lower rate of interest when compared with a 100% conventional loan. With SBA 504 loans, the SBA portion of the total funding is in second position. Because of this, they'll be paid first from the proceeds from the liquidation of collateral in the event the borrower defaults on the loan.
Certified Development Companies (CDCs) supply the SBA 504 loan financing that is guaranteed by the Small Business Administration. Usually, the interest rate charged on these loans is ¾ percent above the current 5 or 10 year U.S. Treasury bond rate.
3. An SBA 7(a) loan normally has lower fees in comparison to an SBA 504 loan.
The fees are zero percent for 7(a) loans which are under $150,000. On loans which are for more than $150,000 which have a maturity of one year or shorter, the fee is 0.25 percent of the guaranteed portion of the loan. 7(a) loans for between $150,000 and $700,000, that have terms that are longer than one year, carry a fee of 3%. For loans that are in excess of $700,000, the fee is 3.5%. An additional 0.25% is charged on any amount that goes over $1 million.
For SBA 504 loans, the fees are typically three percent for the 40% portion of the financing that is guaranteed by the SBA. The fees on the 50% portion of the funding provided by the private conventional loan is totally up to the loan company's discretion and doesn't have a maximum amount specified by the Small Business Administration.
4. SBA 504 loans require that the funding meet specified SBA-defined policy goals. SBA 7(a) loans don't have these kinds of requirements.
SBA 504 loans are specified by the SBA to fulfill specified employment creation criteria or local community development goals. Generally, the SBA requires companies to create or retain one job for every $65,000 provided by an 504 loan. Small manufacturers, on the other hand, have to produce or retain one job for every $100,000 of 504 funding received.. By comparison, 7(a) loans do not have to accomplish any job creation or community development goal criteria.
In summary, a 7(a) loan is much more preferable than a 504 loan for business financing that can be used for acquiring a storage facility or for improving it. 7(a) loans offer much more flexibility and in most cases have lower rates and better terms compared with SBA 504 loans. Additionally, an SBA 7(a) loan doesn't have the SBA-defined policy goal requirements that are associated with a 504 loan.
When you apply for an SBA loan to fund your storage facility, you need to understand that you do not submit an application directly to the SBA. You need to approach banks or other special loan providers for SBA loans. In the past, neighborhood community banks were the primary providers of SBA loans. Unfortunately, a large number of community banks have gone out of business over the past twenty years. As a result, this source of SBA loans has significantly decreased. Concurrently, the large banks that now dominate the banking industry do not want to hassle with small business loans. The good thing is that non-bank SBA loan lenders are rapidly filling the void in small business lending. A good example of these non-bank SBA lenders is Newtek, the small business authority. Newtek was originally launched in 1994. Since then, it has grown to become the biggest non-bank SBA lender in the United States. In 2013, the SBA ranked Newtek as the 6th largest SBA 7(a) lender of all loan providers in the United States. In most situations, Newtek can get you pre-qualified for as much as five million or as little as fifty thousand dollars within 48 hours. Filling out the loan application is easy. Newtek fills out all of the loan paperwork for you.
Article Source: Articles For Knowledge Sharing
About the Author
Written by: Mark J. Krupp, Cofounder of NewBusinessCreator.com
by: Mark Krupp
Html View | Print View
Total views: 710
Word Count: 1187
Date: Mon, 14 Jul 2014 -
Publish/Share this article
To use this article on your site click here to get the HTML code
Remember: The article body, title, author bio and links may not be changed or removed. By publishing this article, you agree to all the terms in our Terms of Service.
Rating: Not yet rated
No comments posted.
More articles in this Category
1: SBA Loan Program Options For Funding a Storage Facility
2: Use possessions to get a Fast Loan From The PawnBroker
3: Opening a bank account online
4: High interest bank accounts news
5: Bank accounts for bad credit simplified
6: Top Interest Rate Savings Bank Accounts
7: Online banking
8: Eliminating your current Below-average Credit
9: Get yourself the particular Platinum electricity.
10: Clickbank newbies, why do you want to lose your Clickbank commissions?
11: Sensible Helpful Hints Pertaining To Starting A Merchant Account
12: Really Good Considerations As To Why You Need To Have A Very Good Merchant Account