Maxed Out on Line of Credit
Many businesses, even thriving ones, run into the issue of maxing out their line of credit. Often a bank will issue a line of credit based on accounts receivable. Unless there is a substantial change in A/R, many banks are unwilling or unable to increase the line. In the growth phase of a business, many owners find themselves in need of additional money with their bank unwilling to lend it to them.
Some business owners turn to other sources of funding, such as raising investment capital. While this option is less risky than a loan, for growing and successful companies, it’s always the most expensive. Entrepreneurs not only give up ownership of their business by doing this, but give up future profits as well.
Affordable Capital through an SBA Loan
Many business owners don’t realize that the Small Business Administration (SBA) offers an affordable way to get more working capital, which can include freeing up their entire line of credit by paying it down to $0 with an SBA term loan. The following example explains how it works.
Let’s say ABC Company has a $1,000,000 line of credit, but their current balance is $900,000. The owner needs additional working capital to hire three more employees and buy additional equipment (a $300,000 investment). Using an SBA 7a working capital term loan they could pay down their $900,000 line to a $0 balance, which then frees up their existing line. Now the business has the full $1,000,000 available for the $300,000 investment (plus $700,000 of new working capital).
Why an SBA Loan over a Conventional Loan?
In short, an SBA Loan can get you more working capital. SBA loans are government backed loans, which means that the SBA guarantees a portion of it. This often means that an SBA loan can provide a business with more working capital than a conventional loan would provide.
For many borrowers the application process is similar for an SBA loan as it is for a conventional loan, but the SBA loan ends up giving the borrower access to more working capital.
Why Don’t More Businesses Use the SBA?
Not every lender offers SBA loans because it requires them to have a certain expertise. That’s why it’s important to get a lender with the right knowledge and expertise.
There’s also a misconception that SBA loans are only for financially weak borrowers. In reality, good borrowers can use an SBA loan to get more working capital and more flexible repayment terms than they might otherwise get.
How To Apply
There are basic eligibility requirements to apply. Contact us to see if your business is eligible. We will be able to answer your questions and match you with the right type of loan for your situation.
Time Bank is a Member FDIC and Equal Housing Lender.