This product is designed for business owners that will occupy at least 25% of the property, can show stabilized financial statements and must also be able to support the requested loan amount.
Small businesses need money for many reasons and there are several ways for entrepreneurs to gain access to necessary capital, with small business loans from banks being the most common. Conventional Owner-User loans are a viable source of capital for companies in need of additional funding. These loan options differ from the programs provided by the U.S. Small Business Administration (SBA), which are made by banks and non-bank lenders and guaranteed by the federal government. While commercial banks provide conventional loans, the funds are not guaranteed by any other entity.
Since these loans are not guaranteed by the federal government, banks prefer to lend to companies that demonstrate a strong ability to service the debt and have significant collateral to cover the loan if the company ultimately cannot pay back the loan. In addition, business owners seeking these loans are usually required to have exceptional FICO scores, a reasonable debt to worth ratio and be able to show lenders a solid business plan and projections especially for a speedy approval process.
Rates and terms can differ significantly between conventional and SBA loans. Conventional loans can be priced off of several different interest rate indexes or internally by a bank, while SBA loans are typically priced off of the Prime Index plus a spread. Banks and lenders will typically determine the loan product during the underwriting or analysis of the loan transaction. They may prefer to make an SBA loan because of the guarantee from the U.S. government. Or, they may choose to use a conventional loan product if the loan request is not eligible for SBA financing.