As the money markets continue to open back up and
commercial loan sources become more plentiful - more banks are now considering
funding guaranteed SBA loans for businesses WITHOUT the requirement of using
commercial real estate or major long-life equipment as collateral. But beware of
using the standard 20-25 year amortization schedule when trying to pre-qualify
these type of loan requests as that may get you into trouble down the road. We
just had a client whose deal fell out during the final underwriting stage
because the loan term was going to be limited to 7 years, instead of the most
common 20-25 year terms that accompanies most SBA loans with real estate. When
the underwriter and/or loan committee decided to limit the term of the loan to
that shorter period - the annual debt service amount went up significantly and
the minimum debt service coverage ratio of 1.25 could no longer be met. Thus,
the loan was denied.
The SBA’s loan programs are generally intended to
encourage longer term small-business financing. However, actual loan maturities
are based on (1) the ability to repay, (2) the purpose of the loan proceeds and
(3) the useful life of the assets financed. Maximum loan maturities have been
established: 25 years for real estate, up to 10 years for equipment (depending
on the useful life of the equipment) and generally up to seven years for working
capital.
To avoid confusion and wasted time and effort, always
try to get a clear, complete and detailed breakdown of the USE OF PROCEEDS for
the loan request early on in the loan pre-qualification process so you can
accurately determine what amortization schedule to use in projecting loan
payment amounts and annual debt service. It's always best to let a borrower or
potential new client know as early on as possible in the process if you don't
believe they'll be approved for the loan amount they are
requesting.
For more information on SBA loan programs, visit us at CommercialLendingPros.com or call Tony at
813-833-3132.
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