SBA backed loans fill a void, helping new business owners start businesses. You can use SBA loan proceeded to purchase land, buildings, equipment, fixtures, supplies, construction costs, and provide working capital while you get your MedSpa up and running. The term is usually 10 years, longer if a building is included.
Medical Spas face additional hurdles since many lenders do not understand what they actually are, or the revenue potential of providing cosmetic and anti-aging treatments like Botox (TM) injections, skin rejuvenation, and laser hair removal. If your local bank does not understand the industry, do not despair there are lenders who specialize in medical spa financing.
If you are considering a SBA secured loan, here are 5 pointers to help you along the way.
1. Make sure you have lots of time and energy
If you are going to get a loan backed by the SBA, you are going to have to follow government generated procedures. Which means these loans are more paper intensive and take much longer than standard term loans. It's not uncommon to see SBA loans drag out a month or two (or even longer). Before you even begin the SBA process, make sure you've completed a business plan with detailed pro forma financials. For more information, check out the SBA's website on Business Plan Basics (www.sba.gov/starting_business/planning/basic.html)
2. Be prepared for all the fees
Many people do not realize the SBA charges a guaranty fee that is typically around 3% for a medical spa. In addition, the lending institute will often pass on other third party costs, including: appraisal fees, legal fees, and a loan packaging fee. One fee the SBA does not have for loans less than 15 years is a pre-payment penalty. This allows you to pay the loan off at any time without penalty.
3. Interest rates can be higher than traditional loans
Another myth is the SBA secured loans have low interest rates. In most cases the SBA guaranteed loans interest rate will be higher than many traditional loans. The SBA does ensure the interest rate for loans over $ 50,000 does not exceed Prime Plus 2.25% for loans less than 7 years, and Prime Plus 2.75% for loans over 7 years. One of the benefits of the SBA loan, is the terms are often longer than traditional loans, for example 7 or 10 years versus 5 years for a traditional loan. The longer the term equates to lower monthly payments, which can help you during the startup phase.
4. Additional collateral and a down payment will usually be required
SBA guaranteed loans usually require additional collateral if the business assets are not adequate to cover the loan. Personal residences are often the most used source of this addition colonial. You will generally require a 20% down payment (unless you're a physician, then only 10% may be required).
5. You'll have to wait to see all of the money
Once approved, the lender is not going to cut you a check for the full amount of the loan. What typically happens is you will need to submit vendor invoices, purchase orders, canceled checks, or quotations before payment will be made. In some cases you may have to pay the vendor first, then get reimbursed from the lender. When the loan closes, your working capital is disbursed in a lump sum.
The above 5 points should help you better understand how SBA guaranteed loans actually work so you can be better prepared. "SBA guaranteed loans are great for new business owners who have available equity in their home, and doctors since it allows doctors up to 90% financing without additional collateral."
For more information on the SBA and its loan guarantee programs, go to the agency's Web site (www.sba.gov) and click "Financing."