7 Myths About SBA Loans
Most small business owners have considered financing at some point in the life of their business. You
may have considered expansion, buying new equipment, more inventories, purchasing real estate, or just
looking for a new capital infusion
But the confusion surrounding SBA loans may perplex or frustrate even the most astute entrepreneur.
Conflicting information from your trusted advisors or the internet may not help to bring you closer to
separating fact from fiction.
There are many myths surrounding SBA loans. Some of these myths are substantial and strong enough
to discourage a small business owner from expanding, getting out from under onerous debt, or even
staying in business. Understanding how an SBA loan works and how to successfully get one for your
business is a matter of separating the facts from the myths. You may recognize yourself in some of the
following misconceptions of SBA loans. You will finish this article more informed and in possession of the
facts. The facts regarding SBA loans can help you to be a better, more successful small business owner.
The U.S. Small Business Administration (SBA) was created in 1953 as an independent agency of the
federal government to aid, counsel, assist and protect the interests of small business concerns, to
preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation.
The SBA recognizes that small business is critical to America's economic recovery and strength, to
building America's future, and to helping the United States compete in today's global marketplace.
Although SBA has grown and evolved in the years since it was established in 1953, the bottom line
mission remains the same. The SBA helps Americans start, build and grow businesses. Through an
extensive network of field offices and partnerships with public and private organizations, SBA delivers its
services to people throughout the United States, Puerto Rico, the U. S. Virgin Islands and Guam.
THE 7 MYTHS
Myth #1- All banks evaluate the risks of a SBA loan request with the same viewpoint.
Financial Fact- Although all banks are subject to the same SBA Guidelines, the rules are subject to
different interpretations with respect to analyzing a particular loan request. Some banks may be willing to
take greater risks. Some banks will take a more optimistic evaluation of the facts and your business'
future success. Therefore, choosing the best bank for your SBA loan needs can make the difference
between loan approval and denial.
Myth #2- All banks offer the exact same types of financing for SBA loans.
Financial Fact- Loan pricing and structure can vary substantially at different banks. Interest rates on SBA
loans are based on the prime rate plus a margin. Some banks are more competitive in price to be leaders
in SBA lending. Some banks will carve-out a provision for accounts receivable and inventory financing
from their loan agreement to permit additional third party commercial financing in addition to the SBA
loan. For the same loan, some banks will require additional collateral guarantees, such as a lien on your
house. Evaluating the adequacy of such additional collateral guarantees is also subject to interpretation.
Myth #3- It takes too long to get through the red tape of SBA loans.
Financial Fact- This may be true if the bank has to deal through the SBA bureaucracy. Many lenders have
"delegated authority" to directly approve a SBA loan. They can provide a full written loan proposal within
48 hours, and some provide a loan commitment within a week of receiving a full loan package. Closing
the loan depends on the specific requirements of each transaction, but takes no longer than closing a
conventional commercial loan. If the loan requires an appraisal, this may add several weeks to the
Myth # 4- SBA loans are only for start-ups or small companies, and not for "big" companies.
Financial Fact- The SBA defines a qualifying small business as "one that is independently owned and
operated and which is not dominant in its' field of operation." The SBA does not discriminate between
start-ups or established businesses, and company size requirements are not the same across the board.
The actual standard used in determining qualification is calculated by number of employees or average
annual receipts and varies by industry. For example, in the manufacturing and mining industries, a
business can have no more than 500 employees to qualify. Average receipts in most retail and service
industries can total no more than $5.5 million. The SBA size regulations are located at sba.gov. Most
lenders can tell you immediately if your business qualifies regarding income and number of employees.
Myth #5- SBA loans require a lot of collateral
Financial Fact- SBA lenders do consider collateral when reviewing a loan application, but they also look
at several other factors. Your character, your creditworthiness with respect to you history of paying your
debts, your management capabilities, and your equity contribution are just as important as having
collateral. SBA lenders.look at your business as a whole, and although they will not deny you loan solely
due to lack of collateral, it can be a contributing factor if there are other weak spots in you application.
Ultimately, your ability to repay the loan from your business's cash flow is the most important
Myth #6- SBA loans are loans from the Federal Government.
Financial Fact - SBA loans come from commercial lenders who participate with the SBA in SBA lending.
The Small Business Administration is an agency of the executive branch of the Federal Government. It
establishes guidelines that lenders must follow when giving SBA loans and the SBA backs each loan with
a guarantee that eliminates some of the risk to the lender. The actual funds for each loan will come
directly from the financial institution. The SBA loans are backed, up to the amount of the guarantee, by
Myth # 7- SBA loans are a loan of last resort.
Financial Fact- Lenders that offer SBA financing should be one of the first places a start-up or small
business owner goes when seeking a business loan (unless you have a friend or relative willing to invest
in your business). The express purpose of the SBA is to help Americans start, build, and grow businesses
in order to promote a healthy economy. SBA loans are structured with longer terms, lower down
payments, and can have lower rates than conventional commercial loans so small business owners have
increased cash flow. Going to a lender for a SBA loan is especially valuable for business owners seeking
loans who may not have collateral required with typical commercial loans. There is a reason the SBA is
the largest single financial backer of U.S. businesses in the nation.
You need to assess your business's current health and growth potential. Would it benefit your company if
you refinanced old debt? Could you increase business with more equipment? Would a facelift bring in
more customers? Would a combination of SBA financing with commercial financing for accounts
receivable and inventory help you succeed?
It is critical to your business that you know not only when to seek financing, but how much you will need,
and what is available. Many businesses suffer of even fail because their owners do not take out loans
when they need to; or they fail because their owners do not borrow enough. Understanding your options
will help you determine these things, which can in turn help your business flourish.
Conclusion: an experienced Commercial Finance Broker can help you separate the myths from the
financial facts. They can find the best SBA loans. They can evaluate the best overall financing structure
for your particular situation with lower interest rates, longer payback times and lower upfront costs. They
can help you understand the big picture and create new opportunities for your consideration.
Copyright © 2007 Gregg Financial Services
Mr. Elberg is a licensed attorney and licensed real estate broker. Gregg Financial Services is a full service
brokerage for commercial finance companies and banks that fund B2B businesses. Mr. Elberg arranges
funding from $25,000 to $50 million per month at competitive pricing, and works to reduce your financing
costs as your company grows. For more information about GFS, please visit our website:
www.greggfinancialservices.com or email:firstname.lastname@example.org