Small Business Loans for years has been a life-saver for numerous aspiring business owners across the globe. A small business loan is a financial solution designed to cater to small and medium scale businesses. Small business loans are known for flexible eligibility criteria and minimal documentation, resulting in a quick and easy application process.
First Hawaiian Bank is a highly reputed bank located in Honolulu, Hawaii. They provide tailored banking solutions, including various services like providing credit cards, dedicated business bank accounts, process payments, and small business loans. The First Hawaiian Bank understands that every great business starts small and is ready to help such businesses.
If you're looking for capital to kick start your small business, read this article thoroughly. Educate yourself about SBA loans, interest rates, fees, eligibility, procedures, and many such parameters to make better decisions for your business.
So, let's dive in.
An Overview of First Hawaiian Bank's Loans
First Hawaiian Bank, founded in 1858, is one of the oldest and largest financial institutions based in Honolulu, Hawaii. The bank holds over 57 branches throughout and also appeared in Forbes 2017 publication in the top 100 largest banks.
The First Hawaiian Bank is one of the top-tier US banks that voluntarily help budding entrepreneurs and aspiring business owners. Whether you're an established business looking for liquidity to pump into your working capital or a starter - the First Hawaiian Bank has got you covered.
There are multiple financing options banks provide. However, debt financing is the most common and appropriate one that small and medium scale businesses seek.
Debt financing is a procedure through which an established or new company voluntarily goes into debt to attain the funds required for their business. They are indebted to the bank repaying the amount in EMIs stretched for 15, 20, or 25 years. Depending on their estimated capacity.
There are various sources of debt financing such as banks, credit unions, friends, family, Small Business Administration loans (SBA), technology-based lenders, microlenders, and beyond.
Types of Loans Offered by The First Hawaiian Bank
One of the most common means to get a loan is an SBA loan. It is a financial option offered by various financial institutions like banks. The US Small Business Administration partners with several financial institutions to facilitate the loans.
An SBA loan aims at catering to small and medium scale businesses for financial requirements such as working capital for fixed assets and other business expenses.
To acquire an SBA loan, a small business owner must be eligible. However, the eligibility is not as stringent as that offered directly by banks. SBA loans are highly flexible and sanction 75% to 90% of loans relying on details like amount and type.
SBA 7(a) Loan Program
The SBA 7(a) loan program is at the forefront of the US Small Business Administration's loan offers. The loan amount caps at $5 million and is non-negotiable.
This program has a flexible guarantee rate. There is an 85% guarantee for up to $150,000 and 75% for those higher than $150,000. The interests rates are flexible and mutually decided between the lenders and the borrowers without exceeding the SBA maximum.
As per the SBA guidelines, no collateral has to be given to lenders for loans up to $25,000. For loans up to $350,000, it depends on the lender to collateralize loans for the maximum extent of the loan.
Now that you know about the SBA 7(a) loan program let's consider the advantages.
- Low-interest rates: One of the primary concerns of borrowers is how much a loan would cost them in the long run. Compared to other forms of debt financing, the SBA 7(a) loans have a very low-interest rate. An SBA 7(a) loan will not cost you more than 4.75% on interest on average. In contrast, a non-SBA loan will charge you a very high interest rate for numerous reasons.
- Repayment Duration: If timely repayment gives you jitters, then you should reconsider taking an SBA loan altogether. However, SBA loans are pretty lenient on the repayment duration. As a borrower, you will have a cushion of up to 25 years to repay your loans, which shouldn't be so pressurizing.
- High Flexibility: One impediment with business loans is that they're subject to how a borrower would use the money. Of course, if you require money for a specific requirement, then it's alright. But most business owners who are new require money and do not have a detailed roadmap. The good news is that SBA 7(a) loans have broad terms of usage and can be used for almost any expense within your business.
7(a) Small Loan
The 7(a) Small Loan is the same as SBA 7(a) Loan program only with a loan cap of $350,000. The loan program assures an 85% guarantee up to $150,000 and 75% beyond $150,000. The 7(a) Small Loan is great for pumping liquidity into your business.
Businesses often require additional operating costs for expenses like expansion, renovation, scaling, logistics, warehousing, and beyond. The 7(a) Small Loan has a good turnaround time of 5-10 days and has the same benefits as the Standard 7(a) loan. However, this loan program has a shorter repayment duration than the Standard 7(a) loan. Although, the good news is that most borrowers will experience lower interest rates.
SBA Express is another loan option offered by several top-tier Banks like the First Hawaiian Bank. The specialty of this loan option is that it has a quick response time, which is 36 hours. Generally, banks respond to loan applications in about 8-10 business days for standard loan options.
However, the credit decision entirely depends on the lender, and there is only a 50% guarantee for the loan. It is so because the loan is provided in a very short period. The lender will use his forms and procedures along with the SBA Form 1919.
The SBA Express loan is a viable means to pump funds into your existing business. Refinancing existing debt is also a great channel to direct an SBA Express loan. Most businesses have a pile of pre-existing debt accumulated overtime via other lenders.
Since SBA loans have low-interest rates, business owners take an SBA Express loan, clear existing debt, and then repay the loan over a stretched period.
Let's look at some of the benefits of SBA Express loans.
- Collateral Flexibility: As for every SBA loan, borrowers are free of collateral for a loan up to $25,000. Beyond $25,000, it is up to the lender to ask for collateral against the maximum amount of loan.
- Quick Turnaround: An SBA Express loan is excellent for emergency fund cases. With a turnaround time of 36 hours, you can tackle emergency cases with ease. Also, the guaranteed rate is around 50% making it hard to sanction the loan, especially when you aren't eligible.
What Lending Criteria Does the Bank Have?
SBA loans are provided to seekers through financial institutions. However, the seekers must be eligible for the loan. The banks focus on very specific aspects and principles. Features like how a business drives revenue, the nature of its ownership, and the location.
Regarding an SBA loan, the banks and the government have not specifically mentioned what businesses are eligible for. Instead, they've specified what businesses are ineligible. So, let's look at universal requirements that every business must satisfy to be eligible.
Following are the requirements.
- Business must be 'small' as per the definition of the US Small Business Administration.
- The business is looking to attain profits.
- The business must operate in or setting out to operate in the United States and its possessions.
- The business is using the funds for a defined purpose.
- Businesses have used other financial resources or personal assets before seeking a loan.
- Businesses must be able to show clearly the need for a loan.
- Businesses must not have any outstanding debt to the US Government.
Loan seekers must make sure they have certain documents and details handy with them. Let's look into those details quickly.
- Cashflow history and projections: Providing cash flow history and projections gives the lenders an estimate about how debt a business can handle. Cash flow shows how much money is retained after having paid the daily working expenses.
- Balance Sheet: Factors such as liabilities, business assets, and owner equity come under a balance sheet. Lenders can predict your position at any given point in time through your balance sheet. Maintaining a document of your balance sheet will increase your probability of getting a loan.
- Credit Score: Make sure you have a good credit history. Lenders often go through two of your credit scores - personal and business. They set a keen eye on your 'personal' credit score as it allows them to understand your capacity to repay the loan.
- Time in Business: Banks are stringent about your time in business. Most lenders prefer giving a loan to those who've completed two-three months. A bank would more probably lend to those businesses that have completed one to three years.
- Business Plan: To keep a business plan ready is a sign that a business has a clear goal. Including a clear roadmap on how you're planning to make your business profitable is a boon. Other aspects like working costs, product costs, real estate costs are also necessary. Banks often prefer borrowers who have a clear path to making their way and have a plan ready.
- Collateral: If you want an SBA loan greater than $25,000, you must have an asset ready for collateral. The collateral that compensates the amount of loan entirely will help you secure the loan smoothly.
- Accounts payable and accounts receivable reports: Accounts receivable is the amount of money customers owe you for your product or service. Whereas accounts payable is the amount, you owe to the vendors who've provided you with a B2B service. Providing the lenders with this information will help them assume your capacity to repay the loan on time.
First Hawaiian Bank's Interest Rates, Fees, and Loan Options
If you're nervous about the interest rates being beyond your capacity, worry not. SBA loans are known for their low and flexible interest rates.
Let's dive into the interest rates first.
SBA 7(a) loan program
The fixed and variable nature of interest rates depends on the Federal Prime Rate. The Prime Rate fluctuates between 3.25% - 4%. Given below are the maximum fluctuations that can occur in interest rates.
Loans that are less than seven years.
- $25,000 or less: Prime rate plus 4.25%.
- $25,000 - $50,000: Prime rate plus 3.25%.
- Over $50,000: Prime rate plus 2.25%.
Loans that are longer than seven years.
- $25,000 or less: Prime rate plus 4.75%
- $25,001 to $50,000: Prime rate plus 3.75%
- Over $50,000: Prime rate plus 2.75%
SBA Express Loans
Since SBA Express Loans have a low turnaround time, you're bound to face higher interest rates. The interest rates differ based on the loan amount you borrow.
Loans stretched above seven years have a prime rate between 4.5% to 6.5% and more.
Borrowers are obliged to pay a guarantee fee, which is a certain percentage of the loan amount. The fees range from 0% to 3.75% from veterans to other borrowers who seek a loan. The fee also depends on factors like the loan amount and maturity period.
There is a systematic way to pay the guaranty fee, and the SBA considers the fee in the following manner.
- $150,000 to $700,000 is 3% fee
- $701,000 to 1 million is 3.5% fee
- More than 1 million is 3.75% fee
For amounts lesser than $150,000, there is no guarantee fee. However, an amount of $150,000 is considered as a 0.25% guarantee fee.
First Hawaiian Bank's Application
The majority of banks, including the First Hawaiian Bank, share the same application requirements. Find a list of all the requirements mentioned below.
- Business certificate/permit/license
- Annual financial report
- Financial statements to prove that you're capable of repaying the loan
- SBA 1919 form
- Personal and Business Information
- Proof of Ownership
- Income tax record of the past three years
- Profit and loss statements of the last three months
- Personal and business credit score and history
- Business history and challenges
- History of previous loans
Summary of First Hawaiian Bank Loan Options
The First Hawaiian Bank is one of those reputed financial institutions you can abide by. FHB is one of the top-tier banks that helps its customers through smart solutions and excellent service. Whether you're looking to open an account or a small business loan, FHB has got you covered.
The US Small Business Administration's or SBA loans are prominent across several top-tier banks. The First Hawaiian Bank caters to small business loans smoothly. The bank is reliant on educating you about SBA loans, collecting your documents, and providing application forms.
You're all set. Make your small business a big success.