SBA Loans: Your Questions Answered

sba small business administration
Road Map to SBA Loans

A Road Map for SBA Loans

Here are the most frequently asked questions about how to get SBA Small Business Administration loans for your company. Come back often because new answers are added regularly.

 

  1. Are SBA Loans Tax Deductible?  Different tax rules apply to the interest paid on SBA loans for businesses.  Whereas personal loans and credit cards do not get tax deductions for the paid interest, loan proceeds used for allowable business expenses, as stated by the IRS, are indeed deductible, as are other write offs listed in itemized tax schedule of deductions such as Section C form.
  2. Are SBA Loans Assumable?  Yes, generally.  SBA loans are assumable, but only if the lending bank reviews and approves, both business and personal, the proposed new borrower’s financial statements.  BE AWARE that the original lender is not always released from their personal guarantee for the loan.  Be sure to negotiate your personal guarantee release before you allow another person to assume your SBA loan.
  3. Will the Loans be Reported as CRA Community Reinvestment Act? This Federal mandate requires banks to lend monies to businesses in their market area to support the local economy.  Even if these loans are secured by residential property as collateral they are to be reported as CRA loans.
  4. SBA loans on the public record? Yes, individuals can indeed ask for information about SBA loans since they are part of the public accessible record.
  5. Are they are Non-Recourse? No, while some lending institutions do offer commercial loans as non-recourse – which means that the borrower does not have to personally guarantee the loan.  All SBA loans are Recourse and must be personally guaranteed.
  6. Can SBA loans be refinanced?  In fact, these days, you can indeed refinance a current SBA loan with a newly granted SBA loan.  To refinance other forms of business debt, however, it must be determined that this debt was incurred for an eligible purpose, and is on unreasonable terms and this refinance will provide a substantial benefit to the small business.
  7. Do they have prepayment penalties? Yes SBA loans do have prepayment penalties that are calculated assuming your loan would have a 20 year repayment time period.  The penalties are incurred it is paid before the half way point, ie 10 years for a 20 year loan, and are equal to one year interest payments for the first year of the loan.
  8. Require down payments? How much?  Yes, it is typical for the lending institution to require a down payment, minimum of 10% and up to 30%, if the securing collateral is insufficient to secure the SBA loans.
  9. Do SBA loans require personal guarantees? Yes all SBA loans must be personally guaranteed by the borrower in order to be granted the funds.
  10. They need collateral to secure the loan?  Yes. First of all, the assets purchased with loan proceeds are collateral in addition other forms of assets including but not limited to real estate,  machinery, inventory and stocks bonds. More information about collateral required for SBA loans
  11. Can it be given to franchises? Yes, the Small Business Administration has developed a specific program for franchises called Finance Industry Program. 

 

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