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Debt Equity Grants; How to Intellegently Fund Business
by Todd A. Smith
Read an advance exerpt from this must read book due for release mid 2011. Mr. Smith explores the use of blended funding sources to sculpt a loan that "intellegenty" works for your business, maximizing leverage without crushing terms and high debt service.
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Washington, DC; Government approval for SBA 504 to restructure existing debt. Bail out for small business; while this ruling is not a panacia, it does spell out badly needed relief the the small businesses in this country. In a tight credit market, this is an effective way to lower debt service costs. Read More
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SBA 504 Loan: How it works
The single most underutilized loan that puts the small business owner first is an SBA 504 Loan. This intelligent approach to business financing is currently assisting thousands of business owner's around the country to expand their businesses.
The SBA 504 loan should be the loan of choice when a company is purchasing and financing fixed assets. Fixed assets are categorized into several different groups including; the purchase of an existing building or business condominium, the construction of a new building, the purchase of equipment or machinery and in some situations leasehold improvements. An SBA 504 loan is only available for small businesses; companies that are of the speculative nature do not qualify under the SBA 504 guidelines. Professional practices such as doctors, lawyers, architects and accountants are all considered small businesses.
This loan has a unique approach to business financing utilizing money from both a Certified Development Company and a traditional bank, sometimes referred to as a partner lender. A Certified Development Company is a federally chartered privately held not-for-profit bank. This unique bank does not have any retail branches its sole purpose is to underwrite and fund loans under the SBA 504 loan program, working in conjunction with traditional banks creating a blended loan. A blended loan is a loan that is funded in part by a Certified Development Company and the partner lender. Many loans are made using a borrower's own bank for the partner lender allowing them to keep their current banking relationship.
This blended lending approach reduces the loan risk to a traditional bank allowing for a reduced interest rate and a smaller down payment, (sometimes referred to as a capital infusion). The reduction in the capital infusion and the lower interest rate has a positive effect on the business's cash flow and working capital. Another positive attribute to the 504 loan is the use of pro-formas in underwriting. Traditional lending practices analyze a company on where they have been and where they are today. Underwriting for a 504 loan analyzes where the company has been, where the company is currently and where the owner's are taking a company if a loan is approved. This is the reason pro-formas for the next two-years on the borrowing company are required as part of the underwriting process. The 504 loan is considered to be a business project loan and encompass more than just the fixed asset when underwritten.