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For many entrepreneurs seeking to fund their next stage of business growth, looking directly to a local bank that you already have an ongoing relationship with seems like the most obvious choice. After all, this lender knows you and your business, which in theory should make the borrowing process easier than if you were to build a new lender relationship from scratch.
If you’re a longstanding customer of Regions Bank, for example, you might be considering the pros and cons of the Regions small business loan as a funding option for your business.
However, in the years since the 2008 recession, many brick and mortar banks, including Regions, have held to more and more stringent qualification standards, making it all but impossible for small business owners to obtain funding through these sources.
At this point, the most readily available Regions small business loan options are SBA loans, which come with lengthy application processes and strict qualification standards.
To help you determine whether a Regions small business loan is the right choice for you, it’s worth taking a quick review of how SBA loans work before diving into the various options available through Regions Bank.
The vast majority of Regions small business loan options are found through loan programs offered through the U.S. Small Business Administration. So, before you consider the pros and cons of Regions small business loans, it’s important to first understand how the borrowing process works with SBA loans in general.
The U.S. Small Business Administration is a government agency dedicated to helping small businesses gain access to the funds needed to support growth and expansion. However, contrary to what many people assume, the SBA itself does not actually make loans directly to business owners. Instead, it partners with banks and other trusted lenders—including Regions—to share the risk involved in lending money to a new or growing business.
Keep in mind that all SBA loans come with a lengthy and involved application process—so if you are in a hurry, an SBA loan is not the product for you.
The typical applicant for the Regions Small Business Loan has a growing business that has demonstrated the ability to create sufficient cash flow to meet its ongoing debt obligations. For you, the owner, this means you are generating enough profit to meet the business’s day to day operating needs, but not necessarily in large enough amounts to finance your next significant business purchase.
In order to meet this need, Regions Bank offers SBA loans for various purposes. Options include the SBA 7(A) loan for startups and small business loans, the CDC/504 loan for large purchases including real estate, and the SBA Express Loan, which addresses smaller loans with a quicker processing time.
Let’s look at the requirements as well as the pros and cons of these Regions small business loan options:
The SBA 7(a) Loan is Regions Bank’s most popular SBA-backed product. It is intended to help new and existing businesses afford financing for a wide variety of needs, including startup capital, equipment financing, inventory expansion, and additional working capital, just to name a few.
This Regions small business loan product comes with either fixed or variable interest rate options. The maximum loan request is $5 million, and repayment terms depend on the purpose of the loan. In the case of working capital, the time frame is 7 years; for equipment purchases, it’s 10 years; and for real estate acquisition, repayment can be up to 25 years.
As with all other SBA Loans, the U.S. Small Business Administration partners with Regions Bank to issue the loan and guarantees up to 75% of the total amount requested.
Under the SBA 7(A) loan umbrella, Regions will offer up to 90% financing on purchases. For you, this means a lower down payment than most other business loans. However, keep in mind that these same terms are available through most SBA intermediary lenders.
Though commonly sought by business owners, the biggest downside to this Regions small business loan option is the time and paperwork-intensive application process. With extensive paperwork requirements from both the SBA as well as directly with Regions Bank, this is not the loan to choose if you need financing quickly for your business.
For purchasing major fixed assets such as long-term equipment, land, or real estate, Regions Bank offers the SBA CDC/504 Loan.
With the Regions SBA 504 loan, amortizations of up to 20 years are available. The maximum loan amount is $12.5 million with either fixed or variable interest rates. Repayment terms range from a minimum of 7 years for equipment to 10 years for real estate with amortization options of up to 30 years.
Because 90% financing is available, the down payment for this loan product is lower than other business loans.
Even so, the application process for a CDC/504 loan through Regions is a lengthy one, and qualification standards can often be inaccessible to the average business borrower.
To be considered, you must not have access to any other source of significant funding, and you need to meet the business structural requirements of the loan program and have significant annual revenue to show you can meet the payment terms of this Regions small business loan product.
If you are looking for a smaller loan amount and a faster closing, then you may be interested in the SBA Express Loan program. Through their partnership with the SBA as a “preferred” lender, Regions Bank can offer either term loans or lines of credit that are guaranteed up to 50% by the SBA.
These express loans are offered with either fixed or variable interest rates and have a maximum loan request of $350,000. Depending on your needs, you have access to either lines of credit or term loans with a longer repayment schedule. Express Loans for working capital can be financed up to 7 years; those for equipment up to 10 years; and those for real estate up to 25 years.
There are two big advantages to using the Express Loan—whether through Regions or another intermediary lender—to obtain your SBA loan. Most notably, this loan product lets you finance the SBA fees, thereby lowering your up-front cash requirements.
The loan process also tends to be shorter, taking away one of the most common frustrations of applying for an SBA loan. In contrast to other SBA loans that can often take as long as 60 days or more to close, the Express Loan can often shorten that to as little as 30 days.
Even if you are specifically interested in funding for your small business with a loan backed by the U.S. Small Business Administration, there are a number of different intermediary lenders you can choose to work with. Since the goal of the SBA is to increase access to funding for all small businesses, they partner with a number of different lenders and offer their guarantee to help facilitate access to funding.
Most lenders offering SBA loans look for businesses with at least 2 years in operation with an annual revenue of $100,000 or more. You need to have a healthy credit score (usually 620 or higher), and in some cases, you may be asked to provide collateral.
Although many local lenders offer products like the Regions Small Business Loan, the application process can be frustrating and time-consuming. To cut out some of that unnecessary stress, consider applying online with a lending specialist who knows the market and can steer you in the best direction. You may even find that an SBA loan is not exactly what you need.
Keep in mind that if you need cash quickly or aren’t prepared to take on a lot of extra paperwork, an SBA loan—whether that’s the Regions Small Business Loan or through a different intermediary lender—may not be your best bet. Regardless of which lender you work with, the SBA loan application process can take weeks or even months to complete, making it an undesirable option for business owners who are committed to a strict timeline.
Fortunately, there are many other small business loan options available that can be a better fit. Consider these alternative small business loan products as you seek to make the best and most informed decision about funding for your small business.
If you’ve ever taken out a mortgage or a student loan, this is likely the loan type you’re most familiar with. Lenders give you a lump sum of cash in exchange for an agreement to repay the principal plus interest and fees at regular intervals for a specified period of time.
Term loans usually come with lower interest rates and longer repayment terms than other business loan products, making it easier for small businesses to work the monthly payments back into the business’s budget.
Maximum loan amounts on most business term loans range from $25,000 to $50,000 with interest rates (fixed or variable) between 7% and 30%, depending on the market and your credit score. Typical term loans require a 1 to 5 year repayment time frame. (Be sure and check the fine print to see if there is a prepayment penalty in case you anticipate satisfying the term of the loan sooner than you’ve established.)
To qualify for most business term loans, you will need a personal or business credit score of 600 or above. The business needs a history of at least one year of operation and an annual revenue of $90,000 or more. Term loans can be closed in as little as a few days.
Loans for equipment financing are typically the simplest way to purchase any type of new equipment you need in order to run your business, from manufacturing equipment to computers. The equipment itself is used as collateral to secure the loan. This type of financing is especially helpful for newer businesses that need essential equipment to get up and running.
Loan amounts for equipment financing are determined by the equipment’s actual value and can be financed for up to 100% of that value. Interest rates vary from 8% to 30%, and repayment time frames are based on the expected lifetime of the equipment.
Needed qualifications include a credit score of 600 or above, at least 11 months in operation, and an annual revenue of at least $100,000. These loans can also be closed in as little as a few days.
One of the most flexible funding options available to small businesses is a business line of credit. Similar to credit cards, this “revolving” credit lets you borrow from a predetermined pool of money up to a maximum amount as often as needed. Interest, as well as repayment amounts and terms, are based only on the amount borrowed at any given time. Business lines of credit are an excellent way for younger businesses to build a positive credit history.
Loan amounts can be from $10,000 to upward of $1 million depending on the anticipated purpose and current credit history. Less than perfect credit history is acceptable, but interest rates and collateral requirements will be higher for these individuals. Interest rates can be as low as 7% but can increase to 25% in some situations.
Typical requirements for establishing a business line of credit include at least 6 months of operating history and an annual revenue of $50,000 or more.
If your business is new or very young, you might not be able to show a business credit history that’s sufficient for qualifying for any of the SBA loans. Using a personal loan for business could be the answer. Since personal loans tend to have lower interest rates and longer repayment terms than most business loans, they can be very attractive in the early stages of your business development.
Personal loans for business purposes have a maximum borrowing amount of $35,000. Interest rates or APRs range from 5.99% up to 36%, depending on the product you choose and your credit history. Repayment time frames are very appealing and normally range between 3 and 5 years.
In order to qualify for a personal loan to use for funding your business, the good news is that none of your business credit or history is used in the lending decision. However, since the lender is loaning the money to you and not your business, the lending decision will depend primarily on your personal credit score and history.
In order to get the lowest rates and easiest terms, you need an excellent credit score. A lower score of 580 is acceptable but will saddle you with higher interest rates and, therefore, higher monthly payments.
It is important to remember that because a personal loan is just that, a personal loan not a business loan, you will be completely responsible for the repayment of the debt if the business fails for whatever reason.
Lenders that specialize in funding for small businesses offer loans that include more than one financial product. These startup loan packages typically include a business credit card, a business line of credit, and equipment financing.
Since the small business startup loan is intended for new businesses with no credit history, the decision of whether or not to extend credit to you relies solely on your personal credit history. So, the higher your credit score, the better your chances of being approved.
The maximum loan amount is $150,000 with interest rates varying from 7.9% up to 19.9%. As an incentive for startup businesses, some of these products will actually be interest-free for the first 9 to 15 months, making them much better choices than some other small business loans. Repayment timeframes typically range from 6 months up to 4 years. Most small business startup loans can be closed in 2 to 3 weeks.
As you can see, there are many loan options available to your business, both through the SBA and otherwise. Before you commit to any business loan product, be certain you have done a complete assessment of your true needs. Your choices should be dictated by the size and type of your business, exactly how you plan to use borrowed funds, and, most importantly, the ability of your business’s projected cash flow to comfortably make the new required monthly payments.
Armed with a thorough knowledge of your business’s financial status and what you anticipate your financial needs will be in the future, you have the tools to make the right borrowing choice for healthy business growth.
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