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BUSINESS LOANS FOR NEW BUSINESSES
We will introduce you to lenders for financing your business or possible new acquisition on a cash flow basis, with 100% financing possible when you acquire an add-on business similar to yours.
We are your one stop source for consulting assistance and sourcing for any business financing or refinancing.
We will help you to structure the loan and terms as well as the purchase price structure for any acquisitions to best provide you with the most advantageous terms possible.
Over the years we have developed an extensive list of direct lender contacts as well as providers of mezzanine debt/loans, second lien financing and a variety of financing sources for literally any type of deal you may be contemplating.
What is ABL? WHAT ARE ASSET BASED LOANS (ABL)?
ABL is an alternative form of financing utilizing the company’s assets as collateral. Usually the term applies to working capital financing, the availability to borrow is based on receivables and inventory. It may also involve longer term financing such as real estate or equipment.
ABL is a valuable tool when bank lines are not available to the borrower, or are insufficient for its needs. ABL works particularly well for growing companies, giving them the ability to maximize all available opportunities. All companies that provide collateral to the borrowers are ABL lenders. ABL lenders are also NON bank lenders which means that they may have a lot more flexibility to make a loan.
How does ABL lending work?
The borrower has a line of credit based on the availability of the collateral and can draw on it as needed within the guidelines negotiated with the lender..
Accounts Receivable (A/R)
The typical advance rate on A/R is 80%-90%. The rate can vary depending upon historic and expected dilution of receivables and the quality of the clients who represent those receivables. If your clients are businesses with no credit history, they may have less value as an asset, better known will allow a higher amount.
It is important that receivables relate to goods delivered and services already rendered or completed.
Eligible” receivables are defined as those not older than an agreed period (usually 90 days from invoice date when there are 30 day terms).
Inventory
The typical advance rate on inventory is 50%-75% of cost. “Eligible” inventory usually comprises finished goods on hand, but could include raw materials. WIP, in-transit inventory, and inventory held for more than a specified period is usually excluded.
If inventory is included in the advance formula there is usually a sub-limit cap and/or such lending is restricted to a percentage of total borrowings or the A/R availability.
- Depending on the size of the credit line, usually annual reviewed financial statements and half-year compilations from an acceptable accountant are required. Quarterly or monthly internal statements may also be required. For smaller credit lines, tax returns may be acceptable. However, the stronger the financial reporting, the better the credit line and the more favorable the terms will be to the borrower.
- ABL lenders require far fewer covenants than banks. Usually only Tangible Net Worth (which also includes subordinated debt) (TNW) and/or working capital covenants are specified. As long as these are met, shareholders are not restricted as to what they can withdraw from the business. ABL lenders are far less restrictive than banks in the amount of TNW covenants with regard to leverage, and 5 to 1 or more is not uncommon.
- ABL lenders want the owners to stand behind the company. This allows them to be more aggressive, knowing that the owners will be assisting to solve problems and liquidate assets, if it becomes necessary.
Rates
Rates and charges vary among lenders depending upon the size, quality and financial condition of the borrower, from a few points over the Prime Rate to 12% or more. For larger credit lines (in excess of $1 million) there is usually an annual credit line fee and interest at a rate above the prime rate. We assist in negotiating the best rate by receiving quotes and proposals from several interested lenders.
Advantages of ABL
- Entrepreneurial asset-based lenders are more flexible and non-bureaucratic than banks. They react quickly and make business-like decisions to ensure that borrowers can obtain the funds they need, when they need them. Because of constant communication the relationship develops quickly and the lender becomes a true “business partner” of the borrower.
- ABL lenders do not blow hot and cold, and support borrowers who perform throughout the business cycles. It is a fact that ABL lending increased during the current financial crisis.
- As the business grows, the credit line will grow automatically, and no clean-ups are required.
- While it may appear that there is additional work in administering an ABL line, everything the lender requires should be readily available in a well-run business.
- By funds flowing into a lockbox, the loan account is automatically paid down daily thereby minimizing interest costs. This arrangement permits the borrower to operate close to a zero-balance checking account.
- ABL works well with all types of businesses, including service companies such as security guards, staffing agencies, IT consultants, trucking, etc. or any business.
ABL lenders are forward-looking. They are more interested in future prospects, growth opportunities and management, than purely historical information. They do not “drive the car looking in the rear-view mirror”.
WHAT is an SBA Loan?
SBA loans have government backing that makes them lower risk for lenders
An SBA loan is a business loan that is guaranteed by the U.S. Small Business Administration (SBA). These loans can be used by businesses to cover startup costs, expansions, real estate purchases, or a wide range of other business expenses.
Because SBA loans are guaranteed by a federal agency (the SBA), they are lower risk for lenders. However, when you take out an SBA loan, you will be borrowing from a lender, which is a bank or another financial institution.
Key Takeaways
STERLING COOPER, INC., WILL INTRODUCE YOU TO THE BANK!
- An SBA loan is a business loan that is guaranteed by the U.S. Small Business Administration (SBA).
- You can take out this kind of loan with a bank or other financial institution.
- If you fail to repay an SBA loan, the SBA will repay the lender and then you would be required to repay the SBA.
- SBA loans have fairly strict eligibility requirements, but if you qualify, they can provide low interest rates and low fees.
- SBA loans may also offer high maximum loan amounts and generous repayment schedules.
How Do SBA Loans Work?
SBA loans are used by thousands of businesses each year to borrow capital. Though they are called SBA loans after the U.S. Small Business Administration, this agency doesn’t actually do the lending. Instead, the SBA works with a network of approved financial institutions and traditional banks that lend money to small businesses, and the SBA partially guarantees the loans.
The loan guarantee means that if the borrower is unable to pay back the loan to the lender, the SBA will step in and pay the lender. This significantly reduces the lenders’ risks, which makes them more willing to lend to small businesses.1
Just because the SBA will pay the lender back, however, doesn’t mean the borrower is no longer responsible for repayment. SBA loans require an unconditional personal guarantee from everyone with at least 20% ownership in a company. This means that these people are personally responsible for repaying the SBA if the business can’t make the payments.2
SBA loans are almost always secured. Your lender will require collateral to secure the loan.
Terms and Requirements for SBA 7(a) Loans
There are several types of SBA loans. The most common, the standard 7(a) loan, allows businesses to borrow up to $5 million. The interest rate you’ll pay is the prime rate plus a spread. The prime rate is a benchmark rate based on the federal funds target rate, and it changes based in part on Federal Reserve Board decisions.
The size of the loan spread is dictated by the SBA. It’s determined by the size of your loan, your loan term, and your loan type (whether it is a fixed-rate loan or a variable-rate loan).34
For variable-rate loans, the SBA imposes a maximum interest rate, which is from the prime rate plus 2.25% to the prime rate plus 4.75%, depending on the loan size. (As of July 2023, those rates are 10.5% to 13%.)54
Interest Rates for Variable-Rate Loans
| Amount of loan4 | Maximum rate for loan with less | than 7-year terms Maximum rate for loan with more than 7-year terms |
| Less than $25,000 | Base rate + 4.25% | Base rate + 4.75% |
| $25,000–$50,000 | Base rate + 3.25% | Base rate + 3.75% |
| More than $50,000 | Base rate + 2.25% | Base rate + 2.75% |
For fixed-rate loans, the interest rates can range from the prime rate plus 5% to 8%, depending on the size of the loan.
| Amount of loan4 | Interest rate (prime rate on first business day of the month plus) |
| Less than $25,000 | 6% plus the 2% permitted by 13 CFR § 120.215 |
| $25,000–$50,000 | 6% plus the 1% permitted by 13 CFR § 120.215 |
| $50,000–$250,000 | 6% |
| More than $250,000 | 5% |
The requirements for getting an SBA loan are relatively straight forward. Among other requirements, you must prove that your business is a small business as defined by the SBA and that you have sought other forms of financing before applying for an SBA loan.
You must be able to provide collateral for loans larger than $25,000. You’ll also need a personal credit score that meets the lender’s criteria, such as 685 or above, and solid annual revenue from your business.
SBA vs. Traditional Business Loans
| SBA loans Traditional | business loans |
| Low interest rates. Variable-rate loans capped at base plus 4.75%. | Potentially higher interest rates, but it depends on the lender and your business |
| Low fees. You’ll pay an upfront guarantee fee and annual service fee for loans of more than $500,000. | Potentially higher fees, but again, this depends on your lender |
| Longer terms. If you use your SBA loan for working capital, inventory, or equipment, you’ll have 10 years to pay it back. If you use it for real estate, you’ll have 25 years. | Shorter terms |
| Hard to qualify. You’ll need to have been in business for a few years and be generating solid revenue from your business. | Can be easier to qualify for, but you should make sure you can easily make the repayments |
| Slow to fund. SBA loans can take one to three months to process. | Quick to fund. Some lenders will pay you the funds instantly after an online application. |
| Personal guarantee required. This puts your personal finances at risk if your business can’t repay the loan. | Personal guarantee not necessarily required, though some lenders may ask for this or for you to put up collateral |
Types of SBA Loans
There are several different types of SBA loans, though some are only used in very specific circumstances. The most common types are:
SBA 7(a) Loans
- Loan limit: $5 million
- Interest rate range: Capped at the prime rate plus 2.25% to 4.75% for variable-rate loans and the prime rate plus 5% to 8% for fixed-rate loans45
- Purpose: General business expenses or to fund purchases and expansion8
SBA Express Loans
- Loan limit: $500,000
- Interest rate range: Capped at the prime rate plus 4.5% to 6.5% for variable-rate loans and the prime rate plus 5% to 8% for fixed-rate loans95
- Purpose: Fast funding for working capital, expansion, and real estate and equipment purchases8
SBA 504 Loans
- Loan limit: $5.5 million
- Interest rate: Pegged to an increment above the current market rate for 10-year U.S. Treasury issues plus fees, which total approximately 3% of the loan amount and are rolled into the loan amount
- Purpose: Purchase of long-term, fixed assets like land, machinery, and facilities10
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