Nine Myths about Small Business Administration Loans

Operating a business involves many components, from developing a business plan to getting your products and services in order, to getting the financing you need. The Small Business Administration (SBA) has a variety of resources and services to help, including special loans that are designed specifically for small businesses.

SBA 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. Here are nine common myths and the facts about SBA loans:

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 may 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 (except financing for business start-ups). The SBA requires a business to 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: The bank actually lends the money.

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

MYTH #5: SBA loans are grants from the government that won’t have to be paid back.

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

• The SBA expects the loan to be repaid.
• The 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. 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 miles of red tape and tons of paperwork.

FACT: Like any journey, the more experienced the guide, the smoother the trip. Work with an SBA-preferred lender so:

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

MYTH #8: SBA loans are available 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 because:

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

MYTH #9: Existing business debt can easily be refinanced into an SBA loan.

FACT: There are serious considerations to think about:

• Very specific criteria must be met to use an SBA loan to refinance a conventional loan.
• Before passing on SBA loans in favor of conventional options, make sure the implications are fully understood.

Working with an experienced lender helps to ensure the SBA loan process will go smoothly. To learn more about using SBA financing for small businesses, reach out to me today.

*Note: all loans are subject to approval.