Hey all, I have an SBA loan for a little over $500,000. My interest is 11.5% with 10 year terms. Majority of my $9,600 monthly payment is interest.
What can I do to lower my interest? I dont know how the government can possibly understand how a small business can survive with such high interests.
Does anyone know of any private lenders? Other banks that will exponentially decrease this?
I’m struggling and November was not a great month for us…
You must log in or register to comment.
“We had to take the deal as that was our only option to secure financing at the time.”
One attribute of small business is its ability to support debt.
Banks and lenders use debt service coverage ratio (DSCR) as an indicator of a company’s ability to generate enough cash to repay its loans. DSCR compares total debt obligations to operating income.
For example, your SBA loan term sheet should have contained a financial stress test that analyzed the ability of your business to deal with economic crisis (i.e. X percent decline in sales).
The lender relies on this analysis to ensure it gets paid every month.
Since you got the loan, we have to assume you passed the stress test.
Consequently, we also have to assume the business is now falling short of its ability to support debt.
The bottom line is lenders really don’t care if you make $1.0 million profit or only $10,000. Their principal concern is getting their money back according to terms and conditions.
In final analysis, the problem isn’t the loan you agreed to it’s the lack of sales that you anticipated.
To add to this, the government understands how small business work and is purposefully try to slow them down to cool the economy off.
Nonsense
The three branches of federal government are legislative (makes laws), executive (enforces law), and judicial (interprets laws).
No branch is mutually exclusive.
For example, executive cannot arbitrarily decide to say no more SBA loans to auto mechanics unless they service EV’s.
There are laws governing SBA. Challenging them requires judicial and changing them requires legislative.
If government wants to cool down economy, it would target consumer spending (67 percent of GDP) not small business.
The Federal Reserve controls interest rates and is independent of all other branches of government on purpose. If I’m wrong please someone correct me.
You might think it’s nonsense, but that’s the way it is.
The Fed monitors risk and uses economic policy to help ensure healthy economy and stable banking system.
To temper inflation, it modulates prime interest rate.
Just several years ago, client would have loan amount $4.0 million at five or six percent. Then it became eight and then ten. Now it’s as much as 13.5 percent (prime + 5.0).
That’s a whopping 50 percent increase in monthly mortgage payment. So, mom and pop sit on sideline.
What causes inflation; deficit spending, not the Fed.
But they want mom and pop to sit on the sideline. That’s what I’m getting at.
I think some in this thread aren’t aware why SBA-guaranteed business loans (not disaster loans) were created. SBA lending’s purpose is not to back loans to save lenders money by subsidizing lower rates. SBA’s purpose is backing loans made “at the margin” to small businesses that would not otherwise be able to get loans from banks. SBA’s mandate is to help more businesses get business loans. SBA backed loans are riskier and therefore will carry higher rates.
I would consider an equity partner or strategic partner to pay off the note.
You can create a structure where investor gets X% of returns until Y% threshold, and then go to some other split, so it doesn’t dilute your ownership quite as much.
Better to own a smaller percentage of a thriving business than 100% of a drowning business.
I actually haven’t tried SBA, that might be worth a shot
I have a friend who got one of those loans. She said she thought it was suppose to be forgiven. I told her not to take it when she told me about it and I thought that was it. She had to close her business for a few months and I guess she was desperate. Now all her profit is going to pay off the loan for the next I don’t know how many years. I applied for at least 4 loans during covid and declined all of them. When I saw the agreements it looked like the only people who were going to benefit were the loan companies. I’m sorry you got into a bad loan, I have done that once too. My only suggestion is to make bigger payments to pay down the principal sooner. That’s how I got out. It was painful but when I was done I felt like I was reborn. Good luck
LOL “I don’t know how the govt can understand how a business can survive this.”
Get wrekt. The govt doesn’t give a shit about your ATR. You took the loan, you knew the terms, deal with it or refi.
Fucking participation trophy generation at work. It IS NOT THE GOVT RESPONSIBILITY TO MAKE SURE YOU’RE OK.
You spelt wrekt wrong. There is no W
11% isn’t that high on a 10 year 7a SBA loan. With out fully screening the deal, I can say you probably don’t have a lot of options. Hopefully you put the cash to good use developing new revenue streams. You can always ask the three f’s for some help: friends, family, and fools
Are you up for selling a stake in your business?
This is the most expensive route to finance a business.
Or could be a partnership that takes the business to the next level.
Not for the owner.
450k I’m at 11% I ask the bank to spilt payment weekly. I need cash man.
i work for an SBA preferred lender (non-bank). it never ceases to amaze me how borrowers sign loan documents where the terms are explicitly laid out and then then they complain about the terms after the fact, as if the lender or government screwed them over. the reality is, the SBA loan was their ONLY option to get funding. the big banks would NEVER have helped the majority of these businesses. people today complain about rates incessantly. dont you read the news? did you think rates were ALWAYS going to be 3%? today’s PRIME rate is 8.50%, the bank or lender does not control that. borrowers need to wake up to reality. i have helped so many borrowers get financing when everyone said “NO” to them. it is so frustrating that now we get blamed for giving them a loan because times are tough and they didnt READ the terms of their loan, and somehow thats the bank or SBA’s fault?!?!give me a break! NOBODY put a gun to their head. an SBA loan is not a predatory loan. you are an adult business person that made a decision to sign a loan agreement. dont come crying FOUL because YOU miscalculated and cant afford it now. dont complain for your mistake. you definitely weren’t complaining when you got the money. there are plenty of other smart borrowers that are THRIVING with their SBA 7a loan.
Damn that is insane. We received the eidl loan 2 years ago, $500k at 3% fixed for 30 years and I was extremely nervous to take this loan 🤷♂️
What made you nervous about that loan?
At the time it felt like a lot and even when I spoke to other smb owner friends they were not leveraging those loans for one reason or another. Looking back I feel like it was a great decision
We have some physical disaster and EIDL loans that total up to about that with similar terms. My mother REALLY wanted to pay them off since we had the cash. I told her that she should just take a draw to pay off her new build house and then think of the SBA loans as a very low interest mortgage (she was looking at 7-8%) instead of just random debt that she should pay off ASAP.
There’s “debt averse” and then there’s “that’s a really bad idea even if it’s paying something off.”
Yes my sba 7a for $270k started in April risen twice close to yours. Most Banks won’t loan until running the business for two years I believe. I used Byline bank- they did a lot of against the law financial fraud to get my loan passed been tough.
Sounds like your business is taking loans. Have you considered being profitable?
OP, I recommend speaking with your loan officer and inform them of your business downturn to discuss your options. With my sba 7a, my lender froze our payments for 90 days and tacked them on the back end of the loan.
Banks understand the economic impact on their business customers and since they have some risk on the loan, they may have a willingness to work with you.
Best of luck.
Don’t use Bank United then they have refused all offers from us and no to all accommodations
We’re in the same boat. $500k balance on our SBA backed loan at 11.5%. We started at 6.5% when we got the loan 5 years ago. After almost a year at this high rate we’re barely surviving as a business. Our bank said they can’t do anything for us. What do they care if we fail and default? The SBA will just pay them off. So I’m in the process of refinancing through a local credit union. They’re offering 7.5% which isn’t awesome but a hell of a lot better than where we’re at now and it’s a fixed rate. When we pay off the current loan at the current bank we can drop the SBA and their added 2% they tack on to every payment. Will be such a relief when it goes through. So I’d suggest trying a local credit union and seeing what they can do for you. I’m sorry you’re struggling too, best of luck to you!
Are most SBA loans not fixed? Genuinely curious as I assumed they would be since they are supposedly helping small businesses, and ya know stability is helpful.
No. Most 7a loans aren’t fixed. They are, but good luck trying to get one. Also. Rates will go back down. I wouldn’t want to be stuck with a fixed rate right now.
Curious about that as well. Adjustable rate SBA loan sounds bonkers but surely this guy didn’t sign on at 11.5.
They are all AR, I think they stopped doing fixed rates several years ago.
It depends on the bank offering the loan. Online and FinTech lenders such as LiveOak sell off their debt, so they need an adjustable rate. Brick and mortar banks can still offer a fixed rate, or fixed for five years, then floating option.
We used a preferred lender who services their own SBA loans. Interest rate is killing us…
May look at a regular bank but they usually want like 70-80% of the loan secured against hard assets afaik.
Yuck, we’ll def scratch that off the list.
Why would you be looking at a 7a loan if you have other options?
Get the SBA loan and then refi. That’s what I did
Most banks won’t lend you any money as it’s deemed too risky. 7a is the only realistic option for either working capital or for a small business purchase.
Nope, ours is prime +2%, and that is standard with 7(a) loans. I was also under the assumption the SBA was supposed to help small businesses, until we signed our loan docs and saw their terms. We had to take the deal as that was our only option to secure financing at the time. We’ve had zero support from them since, don’t even have a contact there that I could reach out to with questions.
I will say, they did help when we were shut down during Covid. After we’d been forced to close for over 3 months they stepped in and made our loan payments for the next 6 months (it was part of the CARES act). It got us through that year but they are definitely making all that money back right now with this ridiculously high interest rate that just keeps creeping up. So, all these small businesses they “saved” during the shutdown are now struggling to survive (if they haven’t already gone under) and its nothing but crickets from the SBA about it.
Ours is but I believe it’s because it was EIDL so they fixed it for 30 years.