Top 3 Myths About SBA Loans

February 25, 2020

facts myths

 

People consider many pieces of information when making decisions. But there’s one type of information people should never use.

And that is …wrong information.

SBA loans are subject to many myths and misperceptions. Let’s look at three that are common, and consider the facts instead.

Myth #1: SBA loans are only relevant to a very select audience.

SBA loans aren’t just for small start-ups. In fact, most small, for-profit businesses are eligible for SBA loans. Primarily, eligible businesses must meet the following criteria:

• Be located in the U.S.
• Operate for-profit in an eligible industry (the list of ineligible business types is relatively short.)
• Have owner equity in the business.
• Meet size requirements.

Regarding the size requirements, many are surprised that the definition of “small” may not be that small at all. The size requirements vary by industry, and in some, a company may have up to 1,000 employees!

Myth #2: SBA loans aren’t for already successful companies.

This is one of the most unfortunate myths because it gets in the way of recognizing many great opportunities. SBA loans are designed to help solid companies that don’t meet all the criteria for conventional credit.

This doesn’t mean the company is in danger of not repaying the loan. To the contrary, the SBA requires that lenders demonstrate a high likelihood a borrower can repay the loan based on historical cash flow or projections.

One of the most common scenarios for good SBA loan candidates are businesses with good cash flow, but inadequate collateral positions.

Myth #3: Obtaining an SBA loan is a long and difficult process

Depending on the level of credit analysis your bank does for conventional loans, you may be surprised to find that obtaining an SBA loan isn’t much different.

Because the SBA is assuming a majority of the risk, it requires thorough underwriting to substantiate repayment. This is a wise best practice regardless of whether the borrower is applying for an SBA loan.

In our experience, the average amount of time from origination to funding is 90-120 days. The cooperation and responsiveness of all parties involved often play the biggest role. In general, the quickest loans to process are refinances of existing loans and leases.
Because of our extensive knowledge and experience with SBA loans, we’ve cultivated a smooth and efficient process for every loan.

SBA loans help community banks better serve the local business community, and provide an outstanding return on investment. Don’t let misperceptions stand in the way of the many great opportunities that exist.
 

 

 

You may also enjoy: 

Understanding the SBA

What's the SBA Process Like? 

 

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Tags: Community banks SBA Loan small business commercial lending