Conventional Loans Can Bring Savings,
Opportunities for Growing Businesses
Ted Sheppe
M
illions of people can say they have achieved the
“American dream” of being their own boss. However,
being a small business owner brings its own set of unique
challenges. One is figuring out when it’s time to graduate
from your first Small Business Administration 7(a) loan
to conventional financing.
SBA loans, as the 7(a) loans are often known, can be
a critical first step for small business owners looking
to get started. These funds are often used to buy office
space and/or equipment, hire new staff or make other
strategic business moves. At Axiom Bank, we’re big fans
of SBA loans. We recently achieved the highest and most
favorable designation as an SBA Preferred Lender.
However, there will come a time when a company can
move on with SBA. While SBA loans are designed to be
easier to get than conventional financing, they’re usually
not the most cost-effective long-term solution. Over time,
the lower interest rates on a conventional loan can yield
significant savings. It may mean the difference between
paying 8 percent and 5 percent each year.
A community bank can be a valuable partner in reassessing
your funding goals. At Maitland-based Axiom Bank, we
specialize in helping our customers navigate growth with
resources tailored to their needs.
If you’ve had an SBA loan for at least three years, you
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may want to consider refinancing. Here are some signs
you might be ready:
Your financial trends are positive. When your
customer base, revenue, profits and cash flow are trending
up over a sustained period, it signals stability in your
business — which may mean you’re ready for the next
stage of financing. On the other hand, if your financial
indicators are choppy, flat or trending down, you will
likely need to delay that conversation until they become
steadier.
Your debt-to-worth ratio is modest. If you have
equity in the business, are profitable and retaining
earnings, and if your current financing agreement is
leveraged properly, you may be able to revisit the terms
of your loan. In this scenario, you likely have some wiggle
room to add debt, provided you have cash flow to repay
it. The common guideline is to stay below a 3:1 debt-to-
worth ratio.
Your spending plans are moderating. The early
or transitional stages of a business typically bring a
heightened need for capital to cover expenses such as new
equipment and employees. However, many businesses can
moderate their capital expenditures starting in years three
to six. If your spending, debt and equity are sufficiently