Education: Business Financing
DEA Education Series: Business Financing Options
Alex Sologoub of Bank of the West provided insight into business financing options
Our featured Education Series speaker for our meeting on 2/21/2017 was DEA member Alex Sologoub from Bank of the West.
Alex presented and led a discussion on financing options for businesses.
Alex compared and contrasted Small Business Administration (SBA) loans with Conventional financing loans.
Without SBA loans, banks would not be able to finance a lot of deals.
Many people assume that SBA loans are:
- Hard to get
- For poor performers
These assumptions are simply not true.
There are also people who dismiss SBA loans without learning the value that SBA loans can bring to many businesses.
Through the SBA the banks can lend more money without having the hard collateral typically needed for a loan.Many people think that SBA loans are provided through the government, and may shy away from them due to unwarranted concerns about possible government involvement.
The Government does not loan the money. Through the SBA, the government places a guarantee on the loan, which allows banks to loan much more money than they would be able to without that government guarantee.
One question was whether SBA loans worked for people selling their businesses to family member, like a child.
SBA loans for the sale of a business to a family member can actually make the process easier if the family member has been involved with the business previously. The SBA recognizes that the transition of a business to a family member who already has a history with the business makes the transition to the new ownership more smooth, thus reducing risk.
Interests rates on SBA loans are very competitive.
And while there is an SBA loan fee, that fee can be amortized over the term of the loan, which can be up to 25 years.
Conventional loans tend to be 10 year loans with 25 year amortization and big balloon payments at the end.
Another key item of note: most banks are forecasting interest rate increases soon.
It might be time to get that financing while the rates are at historic lows.