Before founding Peak Business Valuation, a business appraisal firm in Utah, I worked at a company providing business valuations to hundreds of people and companies for a variety of reasons. SBA business valuations for SBA loans and venture-back valuations were among my favorite project engagements. The reason being, I witnessed firsthand that equity ownership has the potential of achieving financial goals in a timelier manner than if one were to remain a W-2 employee.
Benefits of Owning a Business
There are several benefits to owning a business:
- Independence and Flexibility
- Personal Fulfillment
Though these benefits are enticing, there are several hurdles that make equity ownership extremely difficult to obtain.
Financing a Small Business
One of those hurdles is financing.
Financing is the result of selling equity ownership or the taking on of debt. I see the benefits of both, but there is a source of debt financing that is commonly overlooked. I have not figured out why it is overlooked, but SBA financing is among the best sources of debt for both the lender and the recipient.
SBA stands for Small Business Administration, a government organization set up to assist businesses to succeed. I do acknowledge that not every small business is fit for a small business loan. However, for those small businesses that do qualify, there are several advantages to be aware of:
1. Low-Interest Rates
Non-SBA loans typically charge higher interest rates for a myriad of reasons. The average interest rate on an SBA 7(a) loan is around 7.50% today with the average non-SBA loan interest rate climbing into double digits.
2. Access to Capital
An unbeatable advantage of an SBA loan is access to capital. With an SBA loan, a portion of that loan is guaranteed by the SBA, eliminating “risk” for the bank. Less risk means that banks can potentially lend more capital to businesses.
3. Repayment Terms
Depending on the use of the loan, the term to repay will vary. For instance, the repayment period for working capital is approximately seven years while the repayment term for real estate purchase is up to 25 years.
4. Access to SBA Resources
The primary goal of the SBA is to help small businesses succeed. Access to capital helps businesses grow, but the true value of the SBA lies within the invaluable training and mentorship opportunities. Small businesses have access to state-and local-level SBA offices across the country. Each office host seminars, courses, and networking events to help connect small business owners. Lastly, these programs are available to all small businesses regardless of whether or not the business was approved for an SBA loan.
For most of the businesses I work with, I advise buyers and business owners to research SBA loans. SBA loans provide a great source of financing for small companies. If interested, feel free to email me at ryan@peakbusinessvaluation. I am happy to be an advisor or answer any questions regarding SBA Loans.