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Should I Choose A SBA Loan Or Conventional Loan?

by Patrick Higgins

There may be some circumstances in the life cycle of a business when a Small Business Administration (SBA) loan will be the best opportunity to obtain credit. For instance, a start-up business without a proven track record of operations may find its only access to credit would be with a SBA loan. Some companies may need a SBA loan because they have inadequate collateral for a traditional conventional loan. Generally, a SBA loan will have higher fees and interest rates reflecting the perceived additional risk in the credit. A borrower may find the paperwork and closing requirements a little more cumbersome with a SBA loan; however, the benefits of having access to credit that may not otherwise be available should mitigate this challenge. Whichever loan fits your company best, it is important to remember that the ability to service and repay the debt from the cash flow of the business is the key to obtaining these loans. This is why a business plan with well thought out projections and assumptions is so important.

How can I improve my business’ cash flow?

A business that has a budget laid out in their business plan and frequently compares the actual operating results to their projections will be able to identify ways to improve their cash flows. One suggestion I have is staying on top of your receivables. Send out invoices quickly and perhaps offer discounts to pay sooner. I would also suggest the same with your payables and stretch them if you can, or determine if discounts are available for early payment. Make sure to analyze your pricing compared to your competition at least quarterly and determine if prices can be adjusted to either increase sales or improve margins. Inventory should be reviewed to see if certain products are moving faster than others. Consider discounts on items that are not moving quickly to improve the inventory turn.

Answers provided by Patrick Higgins, Vice President, Commercial Lending at Simmons Bank. He can be reached at 314.569.7253 or pat.higgins@simmonsbank.com. The views in this article are those of Patrick Higgins individually and do not reflect those of Simmons Bank.
 

Submitted 268 days ago
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