In a recent survey, the percentage of Las Vegas business owners who reported a “somewhat” to “very good” financial situation, cash flow and revenue was at its highest point in seven years. It’s an indicator that the economy is improving.
Healthier businesses in stronger industries are in a better position to get approved for credit, and business owners are more confident about pursuing financing. With low-interest rates and favorable real estate values, more small-business owners are looking to expand or buy land instead of leasing space. To get there, an SBA 7(a) term loan makes sense for many.
The U.S. Small Business Administration (SBA), which does not directly make loans, provides a guarantee for loans made to small businesses by banks and other lending institutions. Because the SBA guarantees a portion of the 7(a) loan, SBA lenders are able to offer an alternative to creditworthy business owners who may not be able to obtain conventional bank financing.
To be eligible, a business must operate for profit and qualify as a small business, as defined by the SBA. Also, businesses cannot have a tangible net worth that exceeds $15 million and an average net income of more than $5 million over the past two years.
■ Advantages: The 7(a) loan offers flexibility, such as longer terms and lower down payments, compared with other types of business financing.
■ Fees and interest rates: Loans guaranteed by the SBA are assessed a fee based on the loan’s maturity and the dollar amount guaranteed, not the total loan amount. As a way to encourage more small loans, the SBA is waiving fees for loans less than $150,000.
■ Terms: SBA loan programs generally are intended to encourage longer-term small-business financing. Loan terms are based on the ability to repay, the purpose of the loan and the useful life of the assets financed. However, maximum loan terms have been established: 25 years for real estate, 10 years for equipment (or demonstrated useful life), and 10 years for working capital or inventory loans.
According to the SBA, approximately 95 percent of small businesses are eligible for assistance. To ensure the success of a loan request, a business owner should look for a bank that is part of the SBA preferred lenders program (PLP). As experts in the field, SBA loan officers at banks have the knowledge and experience to streamline the application process and can determine the best program for your needs.
Most lenders also will ask for a business plan, as well as information about your experience and management capabilities. Check with your banker for support in preparing or updating your business plan.
Guy Gugino is an SBA lending business development officer at Wells Fargo in Las Vegas.