SBA and LeverageLine

Supplement Your SBA Funding

Since we serve a large number of clients in the franchise and commercial real estate fields, many of our clients at times ask how our LeverageLine program stacks up against a Small Business Administration (SBA) loan. The answer? Very well. 

As anyone who has attempted to obtain an SBA loan knows, the program is anything but certain. Copies of taxes going back five years; a credit report; a list of all assets with proof and evidence; and a lien on all of your assets in the event you cannot or do not repay your loan plus a long waiting game — all are standard parts of the SBA application process.

With an SBA loan, if your business fails, or if you have insufficient cash flow to repay your SBA loan, your house, your savings accounts, your car — any assets — can be taken by the associated lending bank. The SBA can also micromanage your business if it feels you are putting their loan at risk.

SBA loans are relatively expensive too. Loans in the 7%-9% interest rate range are standard, and loans must be paid back by prescribed, set dates — regardless of the overall profitability of your business or real estate investment, or the axe come down.

Finally, most SBA loans take 2-5 months to complete all of the paperwork, SBA approval, processing, and bank approval and funding. This may not matter to some business or real estate investors, but it can wreak havoc when a time-sensitive situation occurs, such as an opportunity for a prime location that can only be purchased in a shorter time frame.

A LeverageLine, by contrast, has none of these drawbacks.

First, your liability is limited to your stock portfolio, not your house, land, car, savings account, etc. You are being provided a line of credit against an asset made up of the averaged value of the securities in your collateral stock portfolio. Before your lending institution — a top-tier SIPC/FINRA brokerage/bank — offers you a loan, it does extensive risk analysis to ensure that the collateral portfolio represents an asset strong enough to lend against. That takes one a day or two. Once that determination is made, the loan-to-value and interest rate can be set and your term sheet (preapproved financing) is delivered. This makes the portfolio alone the collateral, not other assets.

Documentation is also very limited. No FICO scores, tax copies, personal financial statements, etc. are used to determine your loan eligibility. If your portfolio contains at least $85,000 in securities that trade at $5/share or higher and is not in an IRA OR 401K, your loan will almost certainly be approved, as your credit score does not matter for this program (Only exceptions: No delinquent government debt, bankruptcy in last three years, or foreclosure in last five years).

Best of all, there is little delay. Unlike the long, uncertain wait of an SBA loan, you will be preapproved same day, and your line will be open in about seven business days on average, sometimes less. Speed — having your line in place so that you can use it when needed — means being able to act quickly on opportunities, too, rather than watching them slide by.

Your LeverageLine lender lets you pay back the loan interest-only, and pay back the principal whenever you wish, as much as you wish. Since a LeverageLine is a revolving line of credit, there is no maturity date, no balloon payment, and no set termination date for your credit line. If you so chose, you could use your LeverageLine almost like a private bank, paying down your principal to refill your line for use again. There are no lender fees due and no charges, unless you have drawn from your line, and then the first interest-only payment is due 30 days later.

Unlike SBA loans, our LeverageLine credit line loans are very inexpensive. Whereas SBA loans are typically in the 7%-9% range, LeverageLines are usually in the 2%-5% range, which can add up to a substantial savings over time. In addition — since these have been designed for franchisees, business acquirers, and commercial real estate investors — LeverageLine borrowers can even defer their interest-only payments and place them back on their line to pay later, in order to preserve cash flow or take pressure off of current income — ideal for a new franchise or business scenario. (Also for “fix and flip” real estate investors).

LeverageLines are superior to SBA loans in many other ways too. LeverageLine clients who come through A. B. Nicholas and manage their credit lines responsibly can apply for conventional business credit as soon as six months later, allowing you to expand or supplement your business or real estate investment or even build business credit with the assistance of your major institutional lender, if you wish. .

And your securities portfolio? Yes, your securities will need to be in your new account at your top-tier U. S.-based lending institution (processed for you by your licensed lending institution) but your new account is at an SIPC/FINRA institution and is yours alone, not co-owned in any way. In fact, it is exactly like your previous brokerage except that you have a great pre-approved credit line waiting for you.

A simple lender background lien on the account secures the lender’s interest, but is never exercised unless you were to abandon your responsibility to repay your principal. This means that your stocks, bonds, mutual funds, etc. keep working for you at all times.

When your securities move to your new account at your lending institution, they move without sale or change in any way, a horizontal, electronic, lateral move into your new account handled by your licensed lending institution with your permission with no change whatsoever. You have the same online access, reports on demand, and freedom to trade of any modern U. S. brokerage account because that is what it is. Dividends go where you wish. You can buy and sell securities in your portfolio as you do now, too, with the lone provision that your buying and selling activities do not involve stocks priced lower than the the ones you have sold such that they would dramatically effect the overall value of the portfolio. If they did, your loan could be adjusted.

In sum: the SBA loan process involves a litany of bureaucratic and administrative steps that are time consuming, complex, slow, costly, and limited. At the end of the application process, which involves reams of documents and a lien on all of your assets, you do not even have any guarantee of approval. Your SBA loan must be paid back by a set date, too.

But a LeverageLine is fast, inexpensive, flexible, interest-only, and opens a direct, potentially long-term relationship with a major U. S. banking and brokerage institution with a vested interest in seeing your business or real estate project succeed and thrive.

There’s actually no comparison in our opinion: LeverageLine puts SBA lending to shame.


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