Q: What kind of loan will grow with my business?

Compared to typical business loans which have 3 to 10 year terms, SBA 7a loans are backed by the Small Business Administration and can have terms of up to 25 years, says Jeff Kinate, Vice President, SBA Lending for Old National Bank. SBA loans can be used for virtually everything—from startup costs to ongoing operations expenses, investments, owner occupied real estate at 51% or greater occupancy, transition of ownership deals, debt restructuring, expansion or as a way to weather inflation.

Q: Do all SBA loans have 25 year terms?

The reason for your SBA loan will determine the maximum term. According to the SBA’s Standard Operating Procedures, if the loan is for equipment, working capital or inventory, the term is 10 years. If the loan is for real estate, the term is 25 years. Lenders do have discretion to modify the loan if you’re taking it out for combined purposes, says Kinate. Speaking for Old National, if you’re buying a business that includes real estate and you’ll also be using funds for additional working capital, we could look at a blended loan term to support all the project costs as an example of 15 or 17 years. We also can extend up to 25 years if real estate comprises 51% or greater of the SBA 7a loan proceeds.

Q: Will I be penalized for repaying an SBA loan early?

If the SBA loan term is less than 15 years, there is no prepayment penalty. Even with fixed interest rate options, financing costs can be significant over a long-term loan, so it could make sense to pay down your principal balance when you can, says Kinate, and you have the flexibility to do so if you choose. For SBA loans with terms exceeding 15 years, a prepayment penalty is triggered if you voluntarily prepay 25 percent or more of the outstanding balance within the first three years. After three years, there are no prepayment penalties whatsoever. The ability to prepay long-term loans after three years without penalties is fantastic, and is unique to SBA loans, says Kinate. Most customers wish they could accelerate payments, and this gives them peace of mind. It’s comforting.

Q: Besides longer terms, what other benefits are there to SBA loans?

In most cases, the minimum down payment will be just 10 percent, which broadens your opportunities. Additionally, there are cases where approval up to 100% of financing can occur. For most business loans, banks typically require enough collateral to support the full amount, which can be a major challenge. The SBA Guaranty backs lending on a collateral shortfall, making an SBA loan more attainable without significant assets. In addition, the ability to lock in a low interest rate for the life of your loan eliminates uncertainty, making long-term projections easier. Finally, there are no balloon payments. You won’t have to worry about a big debt coming due,then refinancing at a potentially much higher rate.

Want to know more about SBA loans? Recognized as a Top Preferred Lender by the SBA, Old National Bank can work with you to find solutions to help your business grow.