LAS VEGAS — Small Business Administration loans are opening doors for lenders in the equipment finance space and beyond, as customers take advantage of market opportunities and government subsidies.
Lenders are increasingly able to meet customers’ needs as M&A activity remains high and equipment finance confidence grows. Small Business Administration (SBA) loans are just one avenue to meet those needs, Adam Seery, co-founder and president of Laguna Hills, Calif.-based Harvest Small Business Finance, said today during a panel at the B2B Finance Expo.
“The M&A space is huge; we’re facing the biggest transformation of wealth this country’s ever seen,” he said. “You’ve got the baby boomers that are shifting out, they want to get paid, they want to sell their businesses while they still can, and SBA is a very, very attractive product for that.”
SBA loans ‘sought after’
The SBA 7a loan program handles M&A, working capital, equipment, real estate and any business type or purpose used for financing, Seery said. The SBA 504 loan program covers real estate and equipment, he added. It is usually used for larger transactions that break down as 50% lender as the first trustee, 40% SBA and 10% down payment.
The 504 loan is “a very sought-after product just because the SBA loan is like a bond, and those rates today are like 5.55% 25-year fixed rate money, so even if Harvest is at an 8% first trustee and you got a 5.5[%] second blended rate, you’re somewhere in the low sevens,” he said. “The 7a loan is tied to prime, and prime has been super high. … You’re looking at prime plus two to prime plus three on SBA financing, so you’re in the 10% to 11% range today.”
The prime rate fell to 8% from 8.5% after last week’s Federal Reserve rate cut, Seery said.
With subsidies, SBA loans for $1 million or less carry no fees, he said.
“If you want to charge something through escrow, that’s up to you for your ability to negotiate with the borrower directly, and then there’s typically a 1% rebate or something like that coming back from a lender on the back end,” he said.
As a result, SBA loans can create additional offerings for lenders to reach customers who would otherwise go unserved, Seery said.
“It’s a very cheap product,” he said. “It’s a very attractive product for especially what the borrower was getting compared to other lending opportunities out there.”
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