By Ken Lowy Director, Sales and Strategic Alliances, NewtekOne
For many independent business owners, the problem with their current financing is not necessarily the amount they borrowed. It is the structure of the loan itself.
A shorter amortization period can create unnecessarily high monthly payments, limiting the cash available for day-to-day operations and future investment. A balloon payment can force a business owner into a refinancing event at exactly the wrong time. Standard loan covenants can also restrict how owners use the cash and equity they have worked years to build.
For credit unions serving business members, this creates an opportunity to look beyond simply providing access to capital and consider whether the structure of that capital is helping the business preserve cash flow, maintain control, and invest for the future.
This is why NewtekOne, through Newtek Bank, National Association ("Newtek Bank"), offers business financing with fully amortizing terms of 10 to 25 years, depending on the loan and use of proceeds. A longer amortization period can reduce the required monthly payment compared with financing structured over a shorter period, allowing more equity to remain in the business each month.
For an independent business owner, that difference can be meaningful. Additional cash flow can provide more room to manage operating expenses, absorb unexpected costs, invest in the business, and pursue growth opportunities without continually looking for new sources of capital.
The value of a loan should therefore be measured not only by the amount of financing provided, but also by what the repayment structure allows the business to do after the loan closes.
Many commercial loans are structured with amortization periods that extend beyond the actual maturity of the loan. While this can lower the monthly payment, it also means the borrower eventually faces a significant remaining balance that must either be paid off or refinanced.
That refinancing requirement can introduce uncertainty that has little to do with the performance of the business itself. Credit conditions may have tightened. Property values may have changed. The business may also be in the middle of an expansion, investment cycle, or temporary operating challenge when the refinancing event occurs.
Newtek Bank's fully amortizing loan structures eliminate that balloon payment. The borrower knows the term, understands the payment schedule, and knows that, if the scheduled payments are made, the loan will be paid off at the end of the term.
For the business owner, that provides greater predictability and removes the risk of being forced to refinance simply because the calendar says the loan has matured.
Loan structure can also affect how much control an owner retains over business decisions. Traditional commercial loans frequently include financial covenants that may restrict distributions, dividends, additional investments, or other uses of capital.
Those provisions may serve a purpose within certain lending models, but they can also limit an independent business owner's ability to determine how and when capital is deployed.
Newtek Bank business loans do not include standard loan covenants. For qualified borrowers, that can provide greater freedom to make decisions about distributions, investments, and the use of business capital without the ongoing restrictions commonly associated with conventional commercial financing.
For many entrepreneurs, that control matters. They have built the business, invested their own capital, and understand where additional resources can have the greatest impact. A financing structure that preserves more of that decision-making authority can allow the owner to manage the business based on opportunity rather than lender-imposed operating constraints.
Business owners evaluating financing should consider more than how much capital is available. They should also examine what the financing requires the business to do with its cash each month, how long the repayment period lasts, whether the borrower will face a balloon payment, and whether financial covenants will limit future decisions.
A longer fully amortizing term may produce a lower required payment and preserve more cash for operations and investment. Eliminating a balloon can remove a future refinancing event. Eliminating standard covenants can give the owner greater control over how capital is deployed.
Taken together, these structural elements can have a meaningful impact on both the cash flow of the business and the owner's ability to manage it.
Credit unions have spent decades building trusted relationships with their members, including business owners who increasingly need capital for commercial real estate, equipment, expansion, acquisitions, refinancing, and working capital.
When those financing needs arise, the conversation should not be limited to whether capital is available. It should also include whether the structure of that capital supports the long-term needs of the business.
Through NewtekOne, credit unions can introduce business members to financing solutions designed around long-term cash flow and business-owner control, including 10- to 25-year fully amortizing terms, no balloon payments, and no standard loan covenants.
The right capital is important. The structure of that capital can determine how much cash remains in the business, how much control the owner retains, and how effectively the financing supports the business for years to come.
Connect with NewtekOne to learn more.
NewtekOne, Inc., is a financial holding company, which along with its bank and non-bank subsidiaries provides a wide range of business and financial solutions under the Newtek® brand to business owners. Loans are issued by Newtek Bank, N.A., Member FDIC.