Grow Your Business

Design the Optimal SBA Loan for Your Needs

Length of Term? Equity down payment? Interest Rate? Type of Program? There are many variables that go into designing the optimal loan package for successful Small Business Administration (SBA) financing deals. Fortunately, banks that originate substantial SBA loan volume have SBA Specialists to help match your capital needs to a loan design that fits your ability to repay and thus your ability to gain approval.

Before you go to the bank, make sure you have thought about your capital needs and are conversant in your business situation and potential uses of capital. Take a look at the three strategies below and identify with the one that best fits your business in today’s economy. Each of these strategies reflects different business goals and financial inputs. While many business owners may face issues in more than one category, it is useful before considering a capital infusion to spend the time identifying your great opportunity.

What is Your Primary Business Strategy?

Improvement Strategy

Improvement-focused business owners find themselves in a state of continuous process improvement. The opportunity and the search for higher margins – either through greater revenues or through lower costs – is a regular conversation and focus for management. Business fundamentals are strong, but improvement through productivity, cost structures, stronger collections, better inventory turns, etc., represents significant consequence for the bottom line. 

Capital Needs.  For businesses focused on enhancing their current operations, low-cost capital could be used to:

  • Purchase faster equipment
  • Install more accurate forecasting and inventory management systems
  • Finance large customer orders
  • Purchase real estate to convert rental expense to depreciable real estate asset
  • Convert high-cost equipment leases to depreciable equipment ownership

Growth Strategy

Growth-focused business owners are on the upswing of a market opportunity – a growing category, a recent innovation, the momentum of success. The impact of growing the overall category and/or market share is significant. In cases of a growing category, organic growth of employees, customer segments and locations can require timely financing so that owner income is not constrained. In cases of trying to grow market share, owners may assess the cost of business acquisition versus the cost of organic growth. Either way, a capital infusion will reduce the risk of growth on current business success.

Capital Needs.  For businesses ready to grow, capital can be used to fund the following initiatives, without straining the current business location/product line/etc.:

  • Business acquisition
  • Real estate acquisition for new locations
  • Hiring new employees
  • Developing new products
  • Exporting to new markets

Restructure Strategy

Business owners who identify restructuring as their most important goal or strategy may be less sure of the end game. Restructuring often begins with a business owner identifying that different structure is appealing, but not knowing exactly what that will look like until they have consulted their team of experts. Restructuring requires time to consider issues such as the personal goals of each partner, the fit between business goals and asset deployment, and overall financial health of the company.

Capital Needs.  Owners looking to restructure should take the time to discuss and brainstorm options that could benefit from a capital infusion including:

  • Partner Buyout
  • Real estate sell/lease-back agreements
  • Division of business assets
  • Pension or Retirement Financing

With your overall business strategy in mind, you can begin to look at where your best opportunities lie to put capital to work for your business. The goal at the SBA is making sure that more businesses have the tools they need to start, build and grow operations. Consider the following characteristics and financing options for SBA programs.

What variables should you consider for your optimal SBA package?

Unique Loan Programs with Range of Loan Amounts. With increased loan limits for many types of loans, small businesses are able to borrow larger amounts and combine loans for different capital needs into single applications. From real estate to expansion and buyout loans to export-oriented operations, the SBA has a variety of programs to meet different circumstances. Your banker can help you understand the programs and how they will fit your needs.

Attractive, Competitive Terms and Interest Rates. SBA loan rates are very competitive and in many cases, offer more attractive terms than commercial bank loans. Over the last three years, the SBA stepped up in a difficult lending environment to support more than $93 billion in lending to over 170,000 small businesses. Maximum SBA loan maturities have been established:  25 years for real estate and up to 10 years for equipment and up to seven years for working capital. Shorter- term loans and revolving lines of credit are also available for short-term and cyclical needs.

Approvals Granted. Guidelines have been expanded to include a wider variety of business sizes and loan amounts. Many banks offer expertise and dedicated resources to help companies gain approval quickly. Continuous enhancements in required paperwork and technology are translating into a more seamless, efficient process for owners.

The best place to start is with your bankers and SBA Specialists.  They can help you get started with the exploration process. In addition to the SBA Specialist at bank lending partners, you can also access the following useful SBA resources to learn more about how to assess and optimize an SBA loan package.

Additional SBA Resources.

  • SBA Website. The SBA’s website provides comprehensive information with the latest updates on SBA programs. It also has resources from business planning guides to helpful information for business owners managing and growing their businesses.
  • Small Business and Technology Development Centers. The SBTDC is a leading resource for growing and developing businesses. Their highly skilled professionals work in partnership with the U.S. Small Business Administration to make them a unique and valued asset for entrepreneurs and small business owners.
  • SCORE. “Counselors to America’s Small Business” -  SCORE is nonprofit association dedicated to encouraging the formation, growth, and success of small business nationwide through counseling and mentor programs.

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.