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SBA Loan FAQs
What are the advantages of an SBA loan?
Advantages include lower equity injection and longer repayment terms than conventional bank loans, enabling small businesses to keep their cash flow for operational expenses and spend less on debt repayment.
Why should I apply for an SBA loan through First Horizon Bank?
We take a team approach. All of our customers have a Relationship Manager who works to ensure all of their banking needs are met. We have a team of SBA Bankers who provide expert guidance on structuring the loan, determining eligibility and facilitating the entire loan process. From there, our Documentation Specialists help you close your loan as quickly as possible.
Are there any industries that are not eligible for SBA financing?
Industries that are excluded include gambling, lending, life insurance companies (but not independent agents), religious teaching, primarily political and lobbying activities, oil wildcatting, mining, mortgage servicing, real estate development, bail bond, pawn or private clubs, among others.
What am I allowed to use the money I am borrowing for?
The funds can be used for various business needs, including:
- Permanent working capital
- Revolving working capital
- Furniture and fixtures
- Machinery and equipment
- Purchase of land
- Purchase, construction or renovations to buildings
- Business acquisitions
- Refinancing of existing debt
- Partner buyout
- Business expansion
- Business startup
How much money can I borrow?
The SBA maximum loan amount is $5 million. However, in certain cases, we have the ability to do a conventional loan along with your SBA loan, which allows you to borrow more than $5 million.
My credit is not as good as it needs to be. Am I still able to qualify?
It depends. Credit history is very important in our decision process, as it lets us know how responsible you have historically been with your credit. That being said, we don’t look at your score alone if there are other extenuating circumstances to be considered.
How long does this process take?
Once we have received a 100% complete application, it typically takes one to two weeks for the loan to be underwritten and a decision to be made. If the loan is approved, we will issue a commitment letter with the terms and conditions of the loan. Once we receive the signed commitment letter, the loan will enter the closing stage, which typically takes 20 to 25 business days. This allows us to complete all the necessary processes to close your loan. However, if the applicant does not provide required documentation in a timely manner, the process will be delayed.
Can I pay the loan off early?
If the term of your loan is less than 15 years, there is no prepayment penalty; however, you do need to notify the bank three weeks in advance if you plan to reduce outstanding principal by more than 20%. If the term of your loan is 15 years or longer, then, in addition to the three-week notice, there is a prepayment penalty of 1% in the third year, 3% in the second year and 5% the first year.
What are the collateral requirements? Will I have to pledge my house?
SBA requires that the loan be secured by business assets until the loan is considered fully secured based on margined values or there is nothing left to pledge. If the loan is not considered fully secured, then the borrower will be required to pledge any personally owned real estate with 25% or more equity until the loan is considered fully secured or there is nothing left to pledge. Liens on personal real estate may be limited to the amount of the collateral shortfall. If there is still a collateral shortfall, it is up to the bank to decide if additional collateral will be required.
Can I get a second SBA loan?
Yes, as long as the combined total does not exceed $5 million.
What sort of fees are involved?
The SBA charges a guaranty fee of up to 3.75% depending on the loan program and loan amount. The bank typically charges a packaging fee, and any other closing costs are similar to other conventional loans. There are no origination fees on SBA loans.
How does an SBA guaranty work?
The bank is the one that lends the business the money and, if the loan were to ever default or the business fail, the bank would work with the client to create an alternative payment plan and/or liquidate assets until the loan was fully repaid. If there is a portion of the loan that remains unpaid, the SBA would cover 75% (or whatever the guaranty percentage is) of the shortfall and the bank is left with the remaining 25%. Because the SBA is helping to offset some of the risks the bank is taking, it allows the bank to approve loans that they may not otherwise be able to approve.
How is my interest rate determined?
The interest on a loan is associated with the credit risk associated with it. Loans that are not fully secured will typically have a higher rate.
I write off a lot of expenses. Will this make it harder for me to qualify?
We determine eligibility based on business cash flow. Standard addbacks include depreciation, amortization and interest expense. There are one-time expenses that we can document that will not be recurring in the future and can attempt to add back to cash flow.
What is required as a down payment?
A typical down payment is 10%, but it depends on the loan request.
Can I borrow my equity injection?
The SBA will allow you to borrow your equity injection if you have an outside source of repayment other than the business we are financing. However, depending on the overall credit, the bank may still not allow the equity to be borrowed. This is determined on a case-by-case basis. There are also methods to utilize some types of retirement funds without penalty or a tax event. Your Product Specialist can provide more details.