2 minute read
Why 2021 is the Year for You to Get an SBA Loan
by Bethany McClellan
It’s a great time to get an SBA loan, thanks to a new stimulus bill signed into law in December 2020.
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The Small Business Administration partners with banks to give out small business loans. In a normal year, the SBA guarantees the banks 75% of the value of these loans in the event of a default. However, because of the December stimulus, known as the Consolidated Appropriations Act of 2021, the SBA now guarantees 90% of the value of small business loans in 2021, in the event of a default.
This increase in loan guarantee from the SBA has banks highly motivated to lend to small businesses. Additionally, banks have limited exposure as borrowers are required to put down 10% of the loan amount.
In general, in order for the Small Business Administration to afford defaults, SBA loans are closely underwritten and expensive, with fees paid by the borrower at closing. In a normal year, an SBA loan borrower is required to pay a guarantee fee of 2%-3.5% of the loan amount so the SBA can afford to pay for the loans in default.
In 2021, this guarantee fee is waived. Also in 2021, if a loan is approved by September 30, the borrower receives the first 3 months principal and interest paid for them by the SBA, up to $9,000 per month.
Now is definitely the time to apply for an SBA loan. If you’re looking to start a business or franchise, grow your business by acquisition, buy real estate, or buy your partner out, the SBA is ready to lend to you. There are nationwide lenders not involved with PPP that are prepared to work with you. With a lower required amount down, waived guarantee fees and six months of monthly payments covered by the SBA, small business owners can benefit from this unprecedented past year.
Finally, when applying for an SBA loan, it’s important to be aware that there are several reasons why SBA loans are automatically declined. All owners with more than 20% ownership will be underwritten. In most cases, owners need credit above 640, can’t have had any arrests in the last six months, no felonies in the last seven years, certain bankruptcies can cause issues, and there can’t have been any previous defaults on government loans like FHA, VA, federal student loans or other SBA loans. If none of those complications are present, there are hundreds of nationwide lenders prepared to work with you!
Bethany McClellan of Rapid Business Plans began her career in land acquisition and development with a national homebuilder and honed her small business development skills as Vice President of sales and operations for a local commercial fire alarm contractor before starting her own company in 2014. In the 6 years since, Bethany has helped over 300 small businesses improve their profit margins, obtain loans and plan for their future. To learn more visit https://rapidbusinessplans.com/
