Are you in the process of acquiring a business without real estate? If so, you're likely considering SBA 7a financing as a viable option. However, it's crucial to shop around and ensure you're getting the most favorable terms for your business acquisition. In this blog post, we'll explore key factors to consider when comparing offers from different banks for SBA 7a financing. By understanding these factors, you'll be well-equipped to negotiate the best deal for your business.
Fixed Rate vs. Variable Rate
When evaluating SBA financing offers, one of the first aspects to consider is the type of interest rate being offered. While most lenders typically provide a variable rate linked to the Wall Street Journal prime plus a margin, some may offer a fixed rate option. It's essential to inquire about the availability of a fixed rate, as it can provide stability and help you plan your finances effectively. Keep in mind that the margin, which varies among banks, is a negotiable factor that will impact your overall financing costs.
Negotiating Leverage and Collateral
Negotiating leverage and collateral requirements is another crucial aspect of securing favorable terms for your SBA 7a financing. Different banks may have varying policies regarding the percentage of project costs they are willing to finance and the amount of equity they expect from you. Some banks may require 80% of total project costs, while others might be more flexible and offer up to 90%. Additionally, banks may differ in their collateral requirements, such as the number of properties they place liens on. Understanding these negotiation points will help you assess which banks are more aligned with your financing needs.
Consideration for Working Capital and Total Project Costs
When comparing offers, it's essential to evaluate how banks approach working capital and total project costs. Some banks may be more liberal in their assessment, providing a more comprehensive financing package that includes working capital, employee salaries, and equipment costs in addition to the acquisition funds. By considering the total amount of funds a bank is willing to offer, you can make an informed decision about which offer aligns best with your financial requirements. Remember, choosing a slightly higher interest rate but obtaining a higher financing percentage may enable you to invest the additional funds elsewhere, benefiting your overall business operations.
The Power of a Commercial Mortgage Advisor
Now that we've discussed the key factors to consider, let's explore the best approach for comparing offers from different banks. Working with a commercial mortgage advisor specializing in SBA financing can provide significant advantages. These advisors have extensive networks of bank and credit union lenders, including non-bank SBA lenders. They can leverage their connections to shop your financing request to multiple institutions, ultimately finding the best deal for your specific needs.
Commercial mortgage advisors play a vital role as intermediaries between you and the banks. Banks value these advisors as they bring them business. It's worth noting that commercial mortgage advisors typically earn referral fees from the bank upon successful closings, meaning they don't charge you directly for their services. By collaborating with a knowledgeable advisor, you can gain access to a wider range of financing options and ensure you secure the most favorable terms available.
Book a Call and Get Started
If you're ready to explore SBA financing options further or have any questions related to investor financing for businesses or real estate, reach out to a commercial mortgage advisor. They can guide you through the process, provide more details on SBA 7a and other financing options, and help determine the best fit for your unique situation.