Unlike, conventional loans the interest rate on the SBA 7a program tends to be a floating rate with periodic payment adjustment rather than a fixed rate. However, some lenders will offer fixed rate options for certain real estate or business acquisition transactions. Again this varies from lender to lender. The "Ugly" all principals with greater than 20% ownership interest in the business will be required to personally guarantee the loan. Again unlike a conventional loan the SBA lender will most likely require to file a lien on your personal real estate
property if there exist any significant equity. The "Good" is that the 504 loan program can be used to finance new construction and acquisition of larger owner
occupied businesses with real estate and hotel projects. The longer terms and amortization schedules and fixed interest rates on both the bank and CDC notes provides the borrower with the greatest cash flow coverage and interest rate risk protection. The 504 loan program pricing, term/amortization, and minimum equity injection in most cases will be more favorable to the borrower then an alternative conventional loan option. The "Bad" unlike the 7a program many cost under the 504 program in ineligible to be financed such as franchise fees, working capital and inventory. The 504 program is only limited to owner occupied real estate and no investment or multi family properties qualify. The "Ugly" the 504 loan program primary purpose is to provide small business owners with long term financing and not intended to be used as a bridge loan therefore prepayment penalties in the early stages of the loan are very high.
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The same company has $80,000 in accounts payable, $40,000 in current debt, and $30,000 in accrued expenses.
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” Some forum participants also highlighted the availability of alternative sources of credit. For example, SBA Administrator Karen Mills noted that SBA lending programs reached record volumes. “he SBA in the last quarter had its strongest quarter ever in the history of the SBA. We put out $10 billion in this last quarter into the hands of small businesses. ” Mr. Corralejo called for more funding for SBA and other alternative credit programs: “The biggest problem is that it’s a digit too small. like the lending to CDFIs …alternative means of providing credit…you’re looking at some extraordinary measures that could serve some good. The problem is there’s not enough funding. ” For example, after acknowledging the joint examination guidance that indicates prudent small business lending will not be criticized, Congressman Bachus stated, “Sadly that guidance is not always filtering back to the operational level, as indicated by the constant stream of comments I and my colleagues…receive from community banks and their small business customers…This has become so commonplace that it has become known as the mixed messages problem. ” At the same time, John D. Harrison, Superintendent, Alabama State Banking Department, emphasized the value of local expertise at the field level.
