Author Topic: Prepay SBA loan vs. invest in stock market (or hoard cash)  (Read 1108 times)

SB1T

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Prepay SBA loan vs. invest in stock market (or hoard cash)
« on: August 16, 2017, 11:46:11 PM »
Unsure if I should have posted in the tax or small biz section but figured I would start here ...

I've got my CPA, financial advisor friends, and lawyer at odds over this question on whether I should be prepaying my SBA loan vs investing in the stock market, they aren't quite in my FIRE mentality, so figured this would be a great place for feedback.  The details are:  I've got a cash generating business (incorporated with S designation, I'm 100% owner) that currently has about 14 years remaining on an SBA loan (no prepayment penalty).  The interest rate is 5.8%.  The wife and I are within ~5 years of FI, which if we apply most of our annual savings (nothing current) to the loan we can have it paid off in ~5 years.  We are completely filling all tax-advantaged accounts (HSA, 401k/IRA) already, this would be taxable accounts. For now, ignore the potential to reinvest in my own biz or any other small biz, this is only the "excess" cash.

My question is ... is the 5.8% interest directly comparable to a 5.8% stock market return? In other words, if the market returns ~5.8% (e.g. VTSAX) over the next 5 years is it a wash for me? What all elements should I be considering ... biz interest deductions, short-term vs. long-term capital gains, basis on the biz once selling for capital gains purposes, etc. Over the "long term" the choice of investing in the market seems obvious, but considering a 5 year horizon I'm pushing hard to pay off the loan. I realize there are a lot of open questions on this one, happy to provide more details or just get feedback from experts or others who may have been in similar situations.
« Last Edit: August 17, 2017, 09:28:21 AM by SB1T »