Existing Business Loans

Please note that our minimum loan requirement is $250,000.

When an applicant already owns a business, loan proceeds can be used for the following purposes:

• To purchase Real Estate;

The term for Real Estate loans will be 25 years.

• To purchase machinery and equipment;
• To purchase furniture and fixtures;
• For leasehold improvements on leased property;
• To consolidate debts or purchase another business;

The term for these loans will be 10 years, fully amortized.

• To purchase inventory; or
• To provide working capital.

These loans will have a 7 year term, fully amortized.

Blended Loan Term

What happens if a business needs a loan to purchase a building, install new equipment and needs some money for moving expenses? In that case the term will be blended. Let's look at the following example: A business is buying a building for $300,000, needs $100,000 for equipment, and needs $50,000 for moving expenses, i.e., working capital. In this case the $300,000 (two thirds of the full loan amount) will be at 25 years, blended with $100,000 at 10 years and $50,000 at 7 years for an actual $450,000 loan term of 19 years, fully amortized.

Obviously, if the business is very successful and the owner wants to pay off the principal balance earlier, he may do so. There is no prepayment penalty on SBA Loans.

Real Estate

Please go to our Real Estate section for a full discussion of terms and benefits.  Then return here to fill out your qualification form.

Machinery and Equipment

With an SBA loan a business can finance 100% of the equipment cost (including installation costs) whereas equipment leasing companies do not cover any installation costs associated with the leased equipment, and very rarely if ever do leasing companies or commercial lenders provide a fully amortized loan over 10 years. Additionally, the SBA loan does not carry a pre-payment penalty. Be aware, however, that the SBA loan may require additional collateral such as a blanket lien on all business assets, or real estate collateral.

This is how a $500,000 SBA equipment loan compares to a normal lease or financing option (monthly payments):

In this chart Sample 1 assumes that all loans are at Prime + 2.75% (11.00% at this calculation).  Sample 2 assumes that the SBA loan is at Prime + 2.75% (11.00% at this calculation) and that the conventional loans are at 9.00%.

As this chart illustrates the SBA loan payments are $1,157-$3,983 lower than the conventional options. Any prudent business owner can see the wisdom of this as the longer term markedly improves business cash flow, the one thing that normally concerns him or her the most.

Should the business cash flow support the higher payments, however, the SBA loan advantage then becomes that with a loan fully amortized over 10 years he can afford $789,000 worth of equipment as compared to the $500,000 that the shorter term loans will afford him. See the following chart.

Debt Refinance

You can use SBA loan proceeds to refinance existing business debt under the following conditions:

• SBA requires proof that the original loan (which may since have been refinanced or renewed) and subsequent financing were used for a valid business purpose.
• The note has to be fully secured.
• We have to demonstrate a tangible business benefit from refinancing the existing debt.

Let's review these points. The original loan proceeds must have been used for a valid business purpose such as equipment purchase, leasehold improvements, working capital, inventory, etc. If we can document this, and particularly that the borrower did not use any of the funds personally (investment, etc.), the loan can be refinanced by the SBA.

Additionally, the loan to be refinanced needs to be a secured loan. Unsecured loans, such as unsecured lines of credit, credit card debt or loans from family members, etc., cannot be refinanced by the SBA.

A caveat here is that the SBA will not consider refinancing an existing fully amortized loan, no matter what the interest rate is unless we can demonstrate that the business cannot support the current payments either due to exorbitant interest or shorter (than SBA) term.

Normally, the loans we refinance are short term loans with balloon payments just around the corner which creates a burden on the business and its cash flow.

Here's a classic example of an eligible business refinancing loan.

We were called by a bank to help them save one of their good customers who was heading towards default on his loan and maybe towards bankruptcy. The owner ran a profitable business that unfortunately had terrible cash flow due to a multitude of short term loans on his equipment and real estate leading to monthly loan payments of $33,750. We restructured his 12 loans and converted them into 2 long term loans: the first a conventional loan secured by real estate amortized over 25 years and the second an SBA loan amortized over 10 years. This resulted in monthly payment of just $18,318, which was a $15,000 savings per month. Needless to say, the business was saved.

Working Capital

The most needed business financing, but the one most misunderstood by business owners, is the Working Capital loan.

There are two distinct types of working capital loans:

• Conventional lines of credit, whether secured or unsecured, used for seasonal peaks and valleys, for increased sales with corresponding receivables, or for projects that are bigger or larger in scope than the business can handle with current cash flow. These working capital loans are normally paid back by the business through liquidation of assets, i.e., A/R, contracts completed and paid, etc., and are normally not handled by SBA loans.

• Another type of working capital loan, which the SBA will consider, is the term loan used for business expansion. These are funds needed to finance additional inventory, a second location, a new line of products, additional personnel to provide services, etc. These loans are paid off through increased profits from the expansion activities.

While the line of credit normally has collateral built into it, the term loan, such as the SBA 7 year working capital loan, requires additional hard assets as collateral which can be in the form of equipment or real estate.

In some cases both types will be required, in other cases just one or the other. The main point that differentiates the SBA loan from the line of credit is that it is a term loan with a maturity of up to 7 years.

A conventional lender may turn down a working capital loan request for various reasons:

• The loan may be too small or too big for the bank lending limits;
• Insufficient borrower longevity or profit;
• The borrower is too highly leveraged;
• Operating Statement ratios do not meet bank lending criteria;
• Borrower is out of area; or
• Insufficient collateral.

In these situations an SBA guaranteed working capital loan may be the answer.  If your business needs working capital for

• Expansion;
• Project financing;
• To pay down vendor bills; or
• To take advantage of vendor discounts

fill out our Qualification Form below.

In some cases a business may be able to obtain a Line of Credit to handle working capital needs but often this line is insufficient to fully support the current needs. In such cases we can help the business by combining the Line of Credit with an SBA Term Loan for the additional working capital requirements. This can make the difference between sufficient and insufficient capital and can make the difference between a successful and unsuccessful business.

Key Benefits

• Longer Terms Than Conventional Loans
• Fully Amortized Term
• No Prepayment Penalties
• No Balloon Payments