FREQUENTLY ASKED QUESTIONS
Fees and Expenses
Banks, credit unions, and hard money lenders may have state usury laws which permit them to charge very high interest rates (15% to 35% and higher). SBA lenders are limited to SBA maximums. For variable rate loans over $50,000 the interest rate is currently 6.25% (which is 2.75% over prime). For fixed rate loans the maximum rates are set by SBA on a monthly basis, but are generally 2% to 4% over the variable rate at the time the loan is made. (as of 6/30/2016)
Banks, Credit Unions and Hard Money Lenders often charge upfront Application Fees and Commitment Fees which can be substantial (up to 4% or higher)
Bank and Credit Unions often charge Renewal Fees which can be up to another 4% or higher when they review your loan and possibly extend it (at their option) for an additional term (usually 5 years). If they do not extend your loan, you will be back in the same place looking for another loan and having to pay all those fees again.
SBA itself does charge a Guaranty Fee (which is paid to SBA) which is charged at closing and can be financed with the SBA loan proceeds (in-other-words, you do not have to come up with the cash for this before the closing, you can pay these fees from the funds you receive from your loan). This fee ranges from 1.7% to 2.7625% depending on the loan amount (higher for larger amounts). If the loan does not close you do not pay the Government Guaranty Fee. This is a one time fee SBA fee for any loan term up to 25 years.
In addition, SBA lenders are permitted to charge an Application Fee ranging from 2.0% to 0.60% (lower for higher amounts). Lenders may charge less at their discretion, and as we do, lenders may charge portions of this fee during various stages of the loan application process. At The Loan Source we do not charge an Application Fee (or portion thereof) until you receive a letter-of-interest from us stating the general terms of our interest in your loan request. At The Loan Source, most of this fee can be financed with the funds you get at closing.
It is customary, in the lending industry for banks, credit unions, hard money lenders, and factors to charge borrowers for closing fees, appraisal fees, environmental studies, title fees, state fees/taxes and legal fees in order to close the loan.
The real savings from an SBA loan comes down to (1) usually much lower interest rates, (2) usually lower fees, (3) longer loan term – up to 25 years (the longer the term the lower your monthly payment), and both the wonderful advantages of (4) not having a balloon payment at the end of the term of your loan (which is very common with bank loans and hard money loans), and (5) having the U.S. Small Business Administration overseeing your lender for full compliance with the law (including not incurring unexpected costs).
Yes, but these fees can easily be reduced to zero. There are two kinds of prepayment penalties for 7(a) SBA loans. (1) 21 days advance prepayment notice. An SBA borrower must inform their SBA lender 21 days in advance of a 20% or greater prepayment or pay the difference between the 21 days and the day they payoff or pre-pay. For example, if the borrower pays off 11 days after they gave their notice to their lender, their penalty would be 10 days additional interest, and (2) for loans with terms 15 years or greater, there is a prepayment penalty (which is paid to SBA) of 5%, 3%, 1% respectively for the first 3 years of the loan. Thereafter, there is no prepayment penalty. So, in order to not pay any prepayment fees try not to prepay in the first 3 years (if your loan term is 15 years or greater) and give us 21 days prior written notice.
There are no upfront fees in order for us to see if we have an interest in your loan request. We will review your basic documentation and if we issue you a Letter-of-Interest (which is not a loan commitment, but is a letter showing our interest in your loan), we will clearly show you the fees related to your specific loan request. You then can decide, before you spend a single penny, if you want to move forward on your loan request.
The Loan Source vs Other Lenders
Like you, we are entrepreneurs, not bankers that have never run their own business. We understand what it takes to run a business because we run our own. We know what it is to have to make a payroll every week. We understand a business owner’s credit score can be harshly impacted by their business operations.
SBA loans are regulated for the benefit of the small business borrower as distinguished from bank/credit union traditional commercial loans which are really for the benefit of the bank/credit union. What that means is banks/credit unions will often provide loan terms with conditions that are very restrictive to the borrower. You make one mistake (for example, have a loss in a year or do not keep within certain ratios) and the bank/credit union calls in your loan. SBA frowns on these negative conditions and we do not impose these on our borrowers.
We very much want to use our funds to help business owners and their businesses which have been turned down by other lenders for reasons we do not agree with. We only make what we call “Win-Win” loans. This does NOT mean we are looking to make bad loans, what it does mean is we recognize that many loan requests are rejected by bankers/credit unions because of their institution’s policies, their institutions financial condition and banker’s personal fears. Most people are unaware of the ‘real’ reason they are rejected by their bank, which may have nothing to do with the borrower and their particular loan application. For example, your bank may have too much invested in real estate and their regulators restrict them from lending to more real estate transactions, or, your bank has decided not to lend to certain kinds of franchises/industries, or, your bank just took a large loss on an equipment loan and you are applying for an equipment loan. The reasons go on and on.
All SBLC’s make Small Business Government Guaranteed 7(a) Loans and are required to follow SBA regulations. So, you have significant government protection by going to an SBLC for an SBA loan as distinguished from going to a bank/credit union for a traditional commercial loan. The Loan Source Inc’s major difference from the other SBLC’s is that, like you, we are entrepreneurs. The other SBLC’s are more institutional and operate much more like banks. We have a credit committee of only 3 people compared to other SBLC’s that have up to 7 or more. When we say we are entrepreneurs, we mean that we know what it is like to make payroll, to have to end a long relationship with an employee, vendor or client and spend sleepless nights worrying about something happening or not happening. The bottom line is we are like you, the buck stops with us; ultimately we are the responsible person.
The Loan Source Process
That is really up to you. We need a certain amount of information to inform you of our level of interest, but that only takes as little as 24 to 48 hours after you give us some basic lending information. After that, our process takes about 10 business days, as long as you provide the information we request in a timely manner.
A loan from The Loan Source Inc. requires that you provide us with the following information (within the required time frame): (i) proof of payment of your various required insurances and taxes, and (ii) annual business federal income tax returns. Other than that you have no continuing reporting obligations. Banks/Credit Unions often require various other conditions, which we do not require, to be met or your loan can be called by them. For example, maintaining financial ratios and annual loss triggers.
Yes. We can pre-approve loan requests subject to you meeting various conditions. As a result, you will have the power to make a very real offer to someone interested in selling their property.
No. However, we do provide construction lenders with takeout loan Conditional Approvals. This generally can help the borrower get a construction loan because the construction lender knows that upon completion of the construction process, the permanent lender will payoff their construction loan.
While we have a national license, we generally lend on the east coast.
Call us at 1-800-I-WANT-A-Loan (800-492-6825).
That depends on many factors. If your credit was good for years and then something happened that was not directly your fault, we most definitely take that into consideration; Illness, family issues, banks calling loans for reasons we consider to be wrong can all cause major credit score drops, but we think, in general, that factors that were not caused by you should not impact on our lending decision. This is a major distinction between The Loan Source Inc. and banks/credit unions and other lenders. Most major banks use credit scoring to determine if they want to make you a loan. We however look at the underlying reason for the low credit score, rather than the credit score itself, to help us determine if we want to grant the loan.
The Loan Source Inc. is a privately held family business and we strongly believe in win-win lending. That, to us, means you, if approved, get the money you need and The Loan Source Inc. gets the collateral to secure that loan.
What lenders may consider to be collateral, you may not and vice versa. So, call us and we can tell you if you have sufficient collateral. Often people do not realize they have collateral. For example, the cash surrender value of your life insurance is just one example of collateral you may have but did not know it could be used as collateral for a loan.
Our definition of an entrepreneur is a person that knows how to survive no matter what. We expect you to have had business problems in the past (you may even have had a business failure) and we understand you may have additional business problems in the future. What we look at is how did you handle and overcome those problems which helps us to predict how you will handle them, if they occur, in the future. This is a major distinction between The Loan Source and other banks/lenders. Other lenders want to you look “perfect” to their credit committees, someone that has operated their business in a perfect manner. We do not want that kind of borrower! We want the kind of borrower that will survive no matter what! Are you a survivor?
No. We only make 7(a) SBA Government Guaranteed Loans and service SBA loans (manage the loan after the loan is made). There are advantages and disadvantages to our borrower because The Loan Source Inc. only makes and services SBA loans. The advantage is we do not pressure our borrowers to pay for other services. For example, we do not require you to do your banking with us resulting in you paying significant bank fees for services you do not want. You are free to use any bank to process your checks, hold your deposits, and manage your investments. The disadvantage is that we do not have other lending programs that can help you. For example, we do not provide lines of credit, so you may need to go to another lending source for those funds.
Yes. At least one owner and all 20% or greater owners of the borrower business must personally guaranty the loan. This is an SBA requirement. Don’t be misled by your bank/credit union. Often bankers will say, we do not need your asset(s) as collateral. But then they require a Personal Guaranty. Well that Personal Guaranty is just a few legal steps away from the bank getting your asset(s) as collateral for your loan. If you default, they may get a legal judgment against you and they can ask the court to effectively use the equity in your asset(s) to repay their loan.