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Commercial Loans Vs SBA Mortgage Loans

By Edited Nov 13, 2013 0 0

When comparing commercial loans with SBA loans there are some things to keep in mind. First SBA loans have the highest loan to value in the industry. It's also very common to have the ability to put most of the costs of your project into your loan.

In the conventional commercial financing world you would be required to put at least 30-40% down on the purchase price and additional costs, say for renovations, equipment and supplies would be out in the cold unless you can the additional cash flow to pay for those items. When it comes to refinances you can rarely push the 60% loan to value mark. So it breaks down like this, 85% going with SBA or 60% going the conventional route. So, as you can see there are some big decisions to be made here when deciding to go conventional commercial loans or SBA loan.

When it comes to 25 year amortization and periods ranging from 3-7 years, this is still possible with SBA. Going the conventional route you'll get the stop put on at about 3-5 year fixed rates where the amortization more than likely will never go past 15-20 years. When you have a short amortization schedule you then have an significant increase in your monthly payments and thus a huge drain on your cash flow.

With SBA loans you won't have any balloon clauses since SBA loan are fully amortized, in other words they will be paid off at the end of the period. Conventional loans are structured such that you could have a loan that after say a 3 year fixed period, 10 year term on 1st, 20 year amortization and be faced with a nice balloon payment at the end of the term. With SBA loans you don't have to deal with that balloon payment burden which typically puts the borrower in a very tight pinch.

SBA loans also have low prepayment penalties which is a bonus. For example on a SBA 7a loan, prepay is 5% for 1st year, 3% in year two, 1% year 3 then gone after that. The principle can be paid down by 25% of the balance without getting slapped with a prepay penalty fee. Conventional prepay is typically 5% for 5 years or 5% step down, when you go with SBA it offers more flexibility and just more reasonable.

SBA loans are just flat out more dependable and viable option for lending. During this credit crunch SBA Commercial loan types are still being closed on while conventional loans are being denied which ends up costing the borrower serious cash and wasted precious time and effort.



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