The conventional loan is a great source of capital for small businesses in need of additional funding.
The options available for conventional loans will vary and differ from SBA loans. Conventional loans come straight from the lending bank with no government guarantee.
Franchises and small business owners can of course apply for a conventional loan. The problem lies within the government guarantee that comes with a SBA loan. Traditional banks are not receiving that guarantee from any supporting sources with a conventional loan. Therefore, the bank will want the company to demonstrate several deciding factors for a loan including:
- Debt Service Coverage
- Loan to Value
- Exceptional FICO scores
- Debt to Worth Ratio
- Solid Business Plan
Terms and Conditions
Conventional loans are obtained by following banking requirements and establishing agreed upon terms between the lender and borrow. Most conventional loans will require basic needs to be met such as:
- The amount of the loan
- Description of collateral to be pledged
- An applied Interest rate set in compliance with the State Usury Law
- Specified length of loan
- Loan covenants
- Any other conditions that are met in an agreement with the State and Federal LawsDue to the conditions and requirements conventional funding is often approved in limited amounts with higher interest rates. That is why so many business owners to date seek out the benefits from a SBA loan. Offering a bank a government guarantee for the funding available gives the bank peace of mind and the ability to lower interest rates.