SBA & Bank Term Loans
Term loans are generally considered the gold standard in business financing. Monthly payments, low-interest rates, and terms ranging from 3-30 years allow business owners to plan for the future with affordable capital.
Bank Term Loan
Bank term loans on average are written for three to twenty-five years. A Term loan puts a blanket lien on all company assets as collateral and requires monthly payments. A term loan can limit the use of other financing tools including other affordable debt or invoice factoring. Bank term loans are often used for the purchase of fixed assets. Bank term loans may also require a "down payment" where you pay a certain percentage of the amount of the loan in order to prove affordability.
Very low, fixed interest rates
Predictable monthly payments
Helps build business credit
Lending available for many uses
Longer wait time
Requires strong credit
Usually requires specific collateral
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SBA 7(a) Loans
Lenders are not required to take collateral for loans up to $25,000. For loans in excess of $350,000, the SBA requires that the lender collateralize the loan to the maximum extent possible up to the loan amount.
Maximum loan amount
The SBA 7(a) program is perfect for business owners who need larger amounts of affordable capital. The SBA is also currently in charge of the EIDL and the PPP.
The 7(a) program recently expanded to incorporate the Paycheck Protection Program, the emergency loan program for businesses impacted by the COVID-19 pandemic. PPP loans are available up to $10 million with the ability to be fully or partially forgiven. The maximum interest rate on PPP loans is 1% and repayment terms span five years with the option to defer payment for six months. Congress extended the PPP application deadline to March 31, 2021. The Economic Injury Disaster Loan (EIDL), is not forgivable but comes with the possibility of an advance up to $10,000 that does not need to be repaid. Small businesses may apply for an EIDL through Dec. 31, 2021, for funding up to $2 million which may be repaid over 30 years with payments deferred for the first year. The maximum interest rate for a small business is 3.75%. Nonprofits pay a maximum rate of 2.75%.
Interest on loans are historically low and as of February 2021 payments are deferred for 6 months.
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