Many business owners and entrepreneurs who are in the market looking for a Main Street Loan are being directed to the SBA. And in many cases, they are saying they are not interested because they don't want to pay 6% APR instead of 3.31% APR. This is a typical reaction.
APR is important and a big deal. However, when considering a loan, you need to think about many other considerations. What will the monthly payment be, and what is the term? What are the guarantees and covenants? What are the pre-payment penalties? What liens will the lender place on you?
In the case of the SBA versus Main Street loans, the SBA can make a lot of sense, particularly for borrowers looking for $2 million or less. While the rate on an SBA is higher, you will have ten years to pay back your SBA loan instead of five years on Main Street. When a lender offers you a longer-term, it is always important to consider it, especially if there is no pre-payment penalty. You can pay down more of your balance in good years, but if you have bad years or big speed bumps, you benefit from the lower monthly payments.
For those interested in learning more about the Main Street Lending Program, I will be conducting an Aminar at noon EST today;.