I have had some experience with SBA loans and independent lending companies. From my experience, SBA terms have been much more favorable and the prepayment penalties are much less. The SBA loans will typically require a decent amount of paperwork and take a little longer though. Independent lenders tend to focus on certain industries and feel more comfortable with less documentation due to there experience. There fees will be much higher and the rates will be more than SBA, but they are able to approve and close the transaction at a much faster pace. A few examples of the independent lenders are Butler Capital and GE financing.
A few things I can caution you on regarding the independent lenders are the following:
The lenders will offer you a five year loan with a balloon. The loan payment will be based on a 7 year amortization. Instead of the balloon payment being the principal amount owed after 60 months, the lender will include the interest and principal for the remaining 24 months in the balloon. Example: If your monthly principal and interest payment is $1000 the balloon will be $24,000.
They will also try to get you to pay first and last months payments at closing. In my opinion this is nothing more than a down payment. If they are basing your rate and term from a certain amount they should not require you to prepay the money.
Closing fees are typically much higher. The UCC searches, titles searches, etc.
I would strongly recommend an SBA fixed rate loan or a commercial business loan and would encourage you to check different banks. You will be surprised at how much different the rates can be. Your payments will not fluctuate and you know what to expect each month. With the variable rate the payment starts off high and then goes lower throughout the loan. Doesn’t make much sense to me why the banks would do this when you are starting out but that’s how they work. You may also want to check with your state or local agencies to see if they offer any financing assistance. Some states will offer incentives such as the Linked Deposit here in Ohio. I have attached a link below for an example. This one is based on job creation or retention. Last but not least, owner financing. The lenders will feel more comfortable with the deal and it shows the seller believes in his business. You have a good chance of not putting as much down as well. Hope this might help a bit.
http://www.tos.ohio.gov/content/view/601/348/
A few things I can caution you on regarding the independent lenders are the following:
The lenders will offer you a five year loan with a balloon. The loan payment will be based on a 7 year amortization. Instead of the balloon payment being the principal amount owed after 60 months, the lender will include the interest and principal for the remaining 24 months in the balloon. Example: If your monthly principal and interest payment is $1000 the balloon will be $24,000.
They will also try to get you to pay first and last months payments at closing. In my opinion this is nothing more than a down payment. If they are basing your rate and term from a certain amount they should not require you to prepay the money.
Closing fees are typically much higher. The UCC searches, titles searches, etc.
I would strongly recommend an SBA fixed rate loan or a commercial business loan and would encourage you to check different banks. You will be surprised at how much different the rates can be. Your payments will not fluctuate and you know what to expect each month. With the variable rate the payment starts off high and then goes lower throughout the loan. Doesn’t make much sense to me why the banks would do this when you are starting out but that’s how they work. You may also want to check with your state or local agencies to see if they offer any financing assistance. Some states will offer incentives such as the Linked Deposit here in Ohio. I have attached a link below for an example. This one is based on job creation or retention. Last but not least, owner financing. The lenders will feel more comfortable with the deal and it shows the seller believes in his business. You have a good chance of not putting as much down as well. Hope this might help a bit.
http://www.tos.ohio.gov/content/view/601/348/