Operating a business involves many components, from getting your products and services in order to developing a business plan to getting the financing you need. Fortunately, the Small Business Administration (SBA) has a variety of resources and services to help, including special loans that are designed specifically for small businesses. In fact, according to the SBA, bank loans to small businesses totaled more than $33 billion in 2016.

Small Business Administration loans can help entrepreneurs start, manage or expand their businesses. An experienced SBA lender can determine if your business is eligible and can help you separate facts from fiction because there are some misconceptions about these loans. Here are nine common myths and the facts that set the record straight:

MYTH #1: Successful businesses don’t need an SBA loan.

FACT: Many successful small business owners use SBA loans because these loans can offer more flexibility than conventional financing. Benefits include:

  • Longer repayment terms.
  • Lower down payments.
  • Flexible repayment options.

MYTH #2: The SBA helps people with bad credit get a loan.

FACT: An SBA guaranty helps overcome some financing challenges, but a bad credit history is not one of them. The goal of the SBA is to provide assistance when a borrower’s collateral may not meet conventional lending standards. The SBA requires:

  • A good business plan (showing good cash flow).
  • A good credit history.

MYTH #3: The SBA helps businesses with weak cash flow get loans.

FACT: The SBA takes projected cash flow into consideration, but historical cash flow takes a higher priority. (Exception: financing for business start-ups.) The SBA requires that a business must demonstrate that it can repay:

  • Its existing debt.
  • Any proposed new debt.

Myth #4: The SBA itself lends money to a small business owner.

FACT: Your bank actually lends the money.

  • If you, as the borrower, fail to repay the bank, the SBA will repay the bank a portion of what it is still owed.
  • The size of the portion depends on the SBA program being used.

MYTH #5: Small Business Administration loans are grants from the government that I won’t have to pay back.

FACT: This is not a grant. The SBA operates a loan guarantee program. This means:

  • The SBA expects the loan to be repaid.
  • Your bank expects the loan to be repaid.

MYTH #6: Any small business can get an SBA loan.

FACT: The SBA defines small business with specific criteria. An experienced SBA lender can determine if your business is eligible. According to SBA requirements, the business must:

  • Be independently owned and operated.
  • Not be dominant in its field.
  • Meet SBA employment or sales standards.
  • Not operate in an industry or for a purpose that is prohibited by SBA rules.

MYTH #7: There will be piles of red tape and tons of paperwork.

FACT: Like any journey, the more experienced your guide, the smoother the trip. Rest assured when working with an SBA-preferred lender:

  • You’ll be working with lenders knowledgeable in small business financing.
  • Each of them is dedicated to making the loan process straightforward and hassle-free.

MYTH #8: I can get Small Business Administration loans at any financial institution.

FACT: Banks need to be approved to participate in multiple SBA programs and can earn designations such as an SBA-preferred lender. These designations set the bank apart from many other institutions. Here’s why:

  • Banks must be invited by the SBA to participate in its programs.
  • Not all banks qualify

MYTH #9: I can easily refinance my existing business debt into an SBA loan.

FACT: There are serious considerations to think about:

  • Very specific criteria must be met in order to use an SBA loan to refinance a conventional loan.
  • Before you pass on Small Business Administration loans in favor of conventional options, make sure you fully understand the implications.

One of the most important people to include within your “business team” is a skilled lender who can walk you through the right financing options for your situation. If you’re operating a small business and want to learn more about SBA financing, I’m ready to help. Contact me to get started, or browse our Small Business articles to learn more.