SBA Loans: 8 Common Myths…

Need an SBA loan? “You’ll be filling out forms forever.” “It’ll take them years to approve your loan.” Those are just two of the widely spread, but totally untrue myths about the SBA small business loan programs.

The Small Business Administration (SBA) offers numerous programs to assist entrepreneurs with starting, managing and growing their businesses. Thousands of American businesses are turning to this resource because financing remains a formidable challenge. However, many misconceptions exist about these government-guaranteed programs but it’s really one of the best-kept secrets.

The Following are 8 common myths about SBA.

Myth #1: My business is successful and doing well. I don’t need an SBA loan.
Fact: Many small business owners use SBA – SBA loans help rapidly growing businesses or help fund change in ownerships for businesses. Benefits include:
• Longer terms – 7 years for working capital, 10-15 years for equipment, up to 25 years for
real estate
• Lower down payments
• Increased cash flow
• Flexible repayment options such as monthly installments of principal and interest and no
balloon payments

Myth #2: The SBA helps people with bad credit get a loan.
Fact: The SBA requires;
• A good business plan (showing good cash flow) and good credit history
• The goal of the SBA is to provide assistance when a borrower’s collateral may not meet
conventional lending standards
• An SBA guaranty helps overcome some financing challenges but not bad

Myth #3: The SBA itself lends money to a small business owner.
Fact: The lender (bank, credit union, non-bank lender) actually lends the money.
• The SBA guarantees a portion of the loan (between 50-85%, depending on program)
• Uses for SBA funds include purchase of existing land and buildings (owner-occupied), expand or
modernize facilities, purchase machinery, equipment, leasehold improvements or inventory, and
finance increased receivables and augment working capital

Myth #4: SBA loans are grants from the government that I won’t have to pay back.
Fact: This is not a grant.
• Not only the SBA, but also the lender, will expect that the loan be repaid

Myth #5: Any small business can get an SBA loan.
Fact: The SBA defines small business with specific guidelines including: one that is independently owned and operated; is not dominant in its field and meets SBA employment or sales standards.
• Some industries or purposes are prohibited
• An experienced SBA lender can help determine if your business is eligible

Myth #6: It will be piles of red tape and tons of paperwork.
Fact: Well, it CAN have a lot of red tape (it’s the federal government, after all!) but an experienced SBA lender can handle all that for you.
• The SBA has worked diligently over the last several years to streamline its approval process.
Today, complete loan applications are typically processed by the SBA within 3 to 5 business
• Borrowers that work with a member of the SBA’s Preferred Lender Program (PLP) can get their
loans closed even more quickly. PLP members, like Howard Bank, are deemed to be experts in SBA
loans and have staff dedicated to helping small business owners understand the nuances of these
• A PLP can provide an even quicker turnaround for borrowers by approving applications in-house,
on the spot, without further SBA oversight.

Myth #7: SBA loans come with lots of fees and high interest rates
Fact: There is a cost to SBA loans.
• Lenders typically charge packaging fees. The SBA only charges guarantee fees, which are
typically 2.0-3.75 percent of the guaranteed portion of the loan, depending on the loan amount.
These fees can be financed over the term of the loan, which is typically longer than the term
for a conventional loan.
• As far as interest rates go, the SBA limits how much interest a lender can charge to a
borrower. A borrower also has the benefit of lower down payments, flexible payment options and
no balloon payments.

Myth #8: When the Small Business Administration Guarantees a Loan, there is no need for Collateral.
Fact: Lenders are required to take all available collateral and take a blanket lien on all company assets when making an SBA loan.
• The government is guaranteeing a large percentage of the loan, but it will honor that
commitment only if the borrower is willing to put his or her neck on the line, too.
• It is important to know that with some lenders you don’t have to have dollar-for-dollar
collateral available for your loan. A bank can make an S.B.A. loan even if the borrower doesn’t
own a house (or even if the borrower has a house but no equity in it). But to clarify, if you
do have collateral available, the S.B.A. insists that banks take it.

While SBA loans are sometimes viewed unfavorably in the lending world, many of the myths and misconceptions surrounding them are based on rumors and mis-truths. In reality, SBA loans can be a viable option for many business owners. However, navigating SBA lending can be tricky. After all, the SBA is a government program and involves quite a few rules and regulations. If you think a SBA loan may be right for you, it’s best to work with an experienced lender, like Howard Bank who understands the ins and outs of the agency and small business financing.

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