- April 22, 2022
- Posted by: Dave Otteson
- Category: Accounting Advice
For young and growing pest control companies, access to capital can be challenging, especially with conventional bank financing sources that generally require a three-year track record of profitability, a strong balance sheet and enough collateral to cover the loan. Small Business Administration (SBA) loans may be a more suitable option for less-established businesses looking for growth capital.
Many pest control companies learned about the SBA through its Paycheck Protection Program, designed to help small business owners retain employees and cover other operating expenses during the pandemic. Suddenly, the acronym “PPP” was added to the nation’s small business lexicon, and 11,500 PPP loans were made to the pest control industry, totaling more than $700 million.
Entering the 2022 season with pandemic-related concerns seemingly behind us, it could be time to explore other SBA financing options to help fuel your company’s future growth trajectory.
Listed below are answers to frequently asked questions about an SBA 7(a) expansion loan.
What size loans are available?
Generally speaking, SBA loans have a maximum loan amount of $5 million with the government providing a guarantee of up to 75 percent of the loan, under the 7(a) program.
What can an SBA loan be used for?
Almost any business purpose is eligible, including purchasing real estate or equipment, providing funding for an acquisition or other general working capital needs.
How do interest rates and fees compare to conventional loans?
SBA loan rates are set to the individual lender’s parameters, but they cannot exceed the rates established by the SBA. While fees are generally higher than conventional bank loans, they can be financed with the loan proceeds.
What are the down payment requirements?
Typical conventional loans require a minimum down payment of 20 percent to 30 percent to finance many projects, as compared to an SBA loan that may have as little as 0 to 10 percent down required for many uses. With relaxed equity requirements, your business can conserve valuable working capital to fuel other strategic growth objectives.
How long does the process take?
Obtaining an SBA loan may seem like a daunting task with a mountain of paperwork, but this doesn’t have to be the case. Many SBA loans can be funded in as little as 45 to 60 days from the initial application, depending on the lender’s abilities and how well organized your company’s financial and legal records are. Find a lender who has specific experience with SBA loans and has attained the “SBA Preferred Lender” designation.
What are the key qualification criteria SBA lenders look for?
Lenders look for the ability of your company to repay the new debt by reviewing both your company’s historical and projected financial information. They want to gain a full understanding of your business, your history and your strategy that demonstrates you will pay the loan.
What are SBA loan collateral requirements?
A lien will be place on all assets that are being financed with the loan proceeds, and additional collateral up to the loan amount may need to be pledged, if it is available. However, if additional collateral is not available, the limited government guaranty often mitigates the lender’s risk if other qualification criteria are met (see above).
As a business owner, it’s crucial to ask yourself the right questions and determine if now is the right time to grow your business with additional debt. If you have a well-defined approach for expansion and a proven business model, an SBA expansion loan could be just the fit.
Dave Otteson is vice president of small business lending for Live Oak Bank.
