SBA Lending: Myths vs. Facts

The Small Business Administration (SBA) offers a variety of lending options to assist entrepreneurs with starting, managing and growing their small businesses. However, the expanse of the SBA program is often misunderstood and underutilized. As bankers and lenders, we believe SBA lending is one of the best-kept secrets for small businesses, especially when business owners work with dedicated lenders who understand the ins and outs of the various SBA loan programs.

We’ve compiled some of the frequent “myths” associated with SBA lending and provided some detailed “fact-checking” to debunk some of the common misconceptions of the SBA loan process.

MYTH 1: SBA lending is slow with mountains of red-tape and paperwork.

When you work with a dedicated SBA lender to secure an SBA loan, a majority of the legwork work is completed for you by an SBA lender. For the most part, the paperwork you provide for an SBA loan matches the financial paperwork you would provide any conventional lender or even your mortgage lender.

MYTH 2: The SBA lends directly to small businesses so I can get an SBA loan anywhere.

The SBA utilizes banks as partners to facilitate SBA loans. These loans are partially guaranteed by the SBA, which allows banks to provide financing for businesses on terms that may not be attainable elsewhere, but the SBA itself does not lend.

It is important for business owners to understand that when choosing a bank to secure an SBA loan, the personal relationships and service that the bank and lender provide are critical pieces of the puzzle. Not all banks and lenders are alike.

MYTH 3: SBA loans are for struggling businesses.

It has been a long-standing misconception that SBA loans are for businesses with credit challenges, financial struggles and those who are generally underperforming. This myth couldn’t be further from the truth. While SBA loans can help overcome certain business challenges, many business owners obtain SBA loans to help continue their growth and expansion and it does not waive the lender’s obligation to perform competent underwriting.

A solid lender will work with you to understand your full financial picture, including SBA terms and eligibility, and find a loan structure that will best fit your business needs.

MYTH 4: The burden of an SBA loan out-weigh the benefits.

There are certain guidelines that can make SBA loans seem more cumbersome than conventional lending. For example, it is a well-known SBA guideline that requires lenders to take certain additional collateral, such as residential real estate, in order to secure an SBA loan.

This, among other SBA guidelines, can be daunting to borrowers and make them adverse to SBA programs.

However, when you take the time to discuss these guidelines and the benefits of an SBA loan with a knowledgeable SBA lender, these cumbersome “rules” become less of a burden.

Here are a few of the benefits of SBA lending:
• May allow for substantially less of a cash down-payment than conventional financing
• May offer longer terms on loans; such as 7-year terms for working capital, 10-15 years for business purchases and equipment and 25-year terms on real estate
• May offer more flexible repayment options, including no balloon payments, and no pre-payment penalties on certain loan terms
• Allows for projection-based lending including expansions and start-up lending that are not often found with conventional lending
• May lend with little to no collateral value, especially when the collateral in a business does not meet conventional lending standards
• Can finance a variety of transactions from commercial real estate purchases and construction to business acquisitions and partner-buyouts.

MYTH 5: SBA loans are not borrower friendly.

The SBA program was created specifically to be borrower friendly and assist small businesses across America. SBA loans can be more flexible and favorable than conventional lending and are designed to assist borrowers who cannot get financing elsewhere.

We recommend discussing your business goals with a local, relationship-based SBA lender and taking the time to understand your options and which programs may be right for you. If you are interested in learning more about which SBA loans might work best for your business, connect with our dedicated SBA lending team today.

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