Sometimes a small business owner finds himself with onerous monthly payments on his small business property. The story could be one where the factors were all very positive for the growth and enhancement of the company, yet the company accepted a short term repayment program, or a higher interest rate, because it was the easiest financing to access quickly. When the business recognizes the benefits it can experience from lower payments and longer repayment terms, SBA financing becomes attractive. SBA financing may also appear attractive to the small business owner whose short-term real estate loan comes due on a balloon balance with their bank. Banks by nature are short term lenders, and they typically style their repayment terms to include a balloon balance owing after the loan matures in three years or five years. To the small business borrower, the balloon feature represents loan renewal risk. The small business owner does not know who will own the bank, who will be in charge of management of the bank, the state of the economy, or the interim condition of the business at the time the balloon balance comes due and ready for renewal. They don’t know for sure whether the bank will renew the loan.
Why consider refinancing small business real estate with an SBA loan? With SBA loans, if over half of the loan proceeds were originally used to purchase or renovate real estate, the SBA loan is eligible for a 25-year repayment term. The SBA real estate loan is a permanent mortgage with no balloon balances or loan renewal risk. In addition to financing or refinancing small business real estate costs, the 25 year SBA real estate loan can also provide funds for working capital, new business equipment, renovations, or business expansion. An SBA loan can be a very versatile small business real estate loan!
The primary mandate for an SBA lender contemplating refinancing small business real estate loans is that SBA requires the lender to provide a lower interest rate and/or longer repayment terms such that the small business borrower can lower their payments by at least 10%. The savings in the loan payment is considered a method for freeing up working capital to grow the business, and that causes the SBA loan request to be eligible in accordance with refinancing guidelines.
For whatever reason the small business owner wants to stretch out their loan terms and lower their payments, the SBA loan program can be a good option. In general, SBA loans may offer small businesses lower down payments, longer repayment terms, and easier qualifying criteria than conventional bank loans. A small business borrower that maintains healthy deposit balances and has a long track record with their banker may not need SBA financing. Unfortunately, in a time where more big banks are taking over the small community banks, accommodations for small business financing become more and more challenging. It is much easier for the big banks to accommodate middle market and public companies. The SBA loan program continues to be a lifeline for many small businesses. Because of the volume of small businesses that contribute to the health of the U.S. economy, the SBA loan program remains a significant economic engine for job growth at home!