SBA Loan Program for Employee Trust Companies: Benefits

The benefits of an SBA loan program are revealed primarily in lower interest rates, lower payments and the near total absence of surprises such as balloon payments or five year refinancing fees. While these might be enough to convince most small businesses to lunge for SBA approval, there are other benefits to consider which might be just as, if not more, important for employee trust companies.

How is The Interest Better With the SBA?

While the lending institution, whether it be a bank, private lender or some form of commercial lending, sets the interest rate on loan repayments, the SBA can have the final word. That is, any loan that is approved and backed by the SBA must subject the relevant interest rates attached to it to SBA maximums, which are pegged to the prime rate. In short, the SBA places caps on interest rates that a bank can charge. Moreover, SBA loan programs allow for interest only periods wherein borrowers can easily knock out stacked up interest payments without having to worry about the principle payments.

Does Better Interest Come With Higher Payments?

In fact, it is quite the opposite. SBA loans are well known for their lower payments and looser affordability terms. The SBA accomplishes this by encouraging longer, flexible terms of repayment lasting as long as 5 to even 25 years. Moreover, these extended pay periods are not dotted with annual reviews or application renewal fees. For instance, in the case a construction loan, borrowers sit through a one-time close and can count themselves finished.  

Both the upfront and hidden fees are easily taken care of in SBA loan programs. First, there are no early balloon payments because SBA guaranteed loans are fully amortizing, meaning that the payments remain the same throughout the life of the loan. As a result, borrowers will not have to re-finance their loan because they cannot afford a looming balloon payment. Second, SBA loan programs allow borrowers to finance their closing costs instead of forcing them to pay these fees out of pocket.

What About Collateral in Cases of Default?

This is one of the best features of SBA loan programs, especially as it concerns employee stock ownership companies. According to SBA regulations, only those persons (and their spouses) who own 20% or more of a trust company are required to personally guarantee an SBA loan. This means that these owners must be willing to contribute their personal equity to sustain the required amount of collateral. However, in the case of employee trust companies, individual ownership percentages rarely exceed the 20% mark making it impossible for the SBA to collect on possible future defaults. In those cases where this 20% mark is exceeded, a general restructuring and redistribution of ownership can put minds, and equity, at ease.