SBA Loan Myths

SBA loan myths  can keep many eligible small business from seeking the benefits of these privately-offered, government-backed loans. Get the facts on SBA loan sources, eligibility and timing before passing up what might be a good source of affordable, available funding for your small business.

My Business Is Too Big

Most profitable businesses borrow. It can help with cash flow or allow you to get needed equipment or build for expansion. The term "small business" is often understood as "mom and pop," but this is a myth. The fact is, depending on your industry, your quite sizable enterprise can qualify for an SBA loan. As an example, a retail business can have more than $5 million sales. A manufacturer can have up to 500 employees.

Check with the Small Business Administration district office in your area to determine what constitutes a small business in your industry segment before giving up on SBA loans.

Government Money Has Strings

It might be true that government money comes with strings attached, but SBA loans are not government money. The myth is that borrowing from the SBA entangles you with the government. The fact is an SBA loan is not from the government; it is backed by the government.

SBA loans are offered through authorized commercial lenders - such as banks - and because the government is guaranteeing the loan, your lender can offer better loan terms than you might otherwise qualify for. In fact, for many of its loan programs, the SBA won't let private lenders charge fees that they would to charge to traditional borrowers.

It Takes Too Long

If your lender must file your application with the SBA, then, yes, the process of getting approval can be longer than with a straight commercial loan. However, many lenders are authorized by the SBA to grant loan approval. In that case, getting your SBA loan funded and approved will take no more time than any other commercial borrowing you do.

Collateral Requirements Are too High

Well, maybe. The fact is SBA loans do require collateral. However, much more than collateral goes into consideration of your application. The lender will also look at the rest of the so-called "Five Cs," which include your character, capital in your business, capacity to repay and conditions of how you want to use the borrowed funds.

All the Loans Are the Same

Not true. There are guidelines from the SBA and specific requirements. The interest rate will be set at a given percentage point above the government's cost of funds, but your lender can elect to charge less than the maximum allowable rate of interest. As with any loan, if you are a good, creditworthy borrower, you have negotiating power with your lender and this include SBA loans.

Last Resort

Many believe you must have notice of being turned down by three traditional lenders such as banks or credit unions before the Small Business Administration will consider you for an SBA loan. It's a myth. There are SBA loan programs for start up businesses. Check with your local SBA lenders before believing the myths and counting yourself out of this opportunity.