Most small business owners have considered financing at some
point in the life of their business. You may have considered expansion, buying new equipment, more
inventories, purchasing real estate, or just looking for a new capital infusion. But the confusion
surrounding SBA loans may perplex or frustrate even the most astute entrepreneur. Conflicting information
from your trusted advisors or the internet may not help to bring you closer to separating fact from
There are many myths surrounding SBA loans. Some of these myths
are substantial and strong enough to discourage a small business owner from expanding, getting out from under
onerous debt, or even staying in business. Understanding how an SBA loan works and how to successfully get one for
your business is a matter of separating the facts from the myths. You may recognize yourself in some of the
following misconceptions of SBA loans. You will finish this article more informed and in possession of the facts.
The facts regarding SBA loans can help you to be a better, more successful small business owner.
The U.S. Small Business Administration (SBA) was created in 1953
as an independent agency of the federal government to aid, counsel, assist and protect the interests of small
business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of
our nation. The SBA recognizes that small business is critical to America's economic recovery and strength, to
building America's future, and to helping the United States compete in today's global marketplace. Although SBA has
grown and evolved in the years since it was established in 1953, the bottom line mission remains the same. The SBA
helps Americans start, build and grow businesses. Through an extensive network of field offices and partnerships
with public and private organizations, SBA delivers its services to people throughout the United States, Puerto
Rico, the U. S. Virgin Islands and Guam.
THE 7 MYTHS
Myth #1- All banks evaluate the risks of a SBA loan request with
the same viewpoint.
Financial Fact- Although all banks are subject to the same SBA
Guidelines, the rules are subject to different interpretations with respect to analyzing a particular loan request.
Some banks may be willing to take greater risks. Some banks will take a more optimistic evaluation of the facts and
your business' future success. Therefore, choosing the best bank for your SBA loan needs can make the difference
between loan approval and denial.
Myth #2- All banks offer the exact same types of financing for SBA
Financial Fact- Loan pricing and structure can vary substantially
at different banks. Interest rates on SBA loans are based on the prime rate plus a margin. Some banks are more
competitive in price to be leaders in SBA lending. Some banks will carve-out a provision for accounts receivable
and inventory financing from their loan agreement to permit additional third party commercial financing in addition
to the SBA loan. For the same loan, some banks will require additional collateral guarantees, such as a lien on
your house. Evaluating the adequacy of such additional collateral guarantees is also subject to
Myth #3- It takes too long to get through the red tape of SBA
Financial Fact- This may be true if the bank has to deal through
the SBA bureaucracy. Many lenders have "delegated authority" to directly approve a SBA loan. They can provide a
full written loan proposal within 48 hours, and some provide a loan commitment within a week of receiving a full
loan package. Closing the loan depends on the specific requirements of each transaction, but takes no longer than
closing a conventional commercial loan. If the loan requires an appraisal, this may add several weeks to the
Myth # 4- SBA loans are only for start-ups or small companies, and
not for "big" companies.
Financial Fact- The SBA defines a qualifying small business as
"one that is independently owned and operated and which is not dominant in its' field of operation." The SBA does
not discriminate between start-ups or established businesses, and company size requirements are not the same across
the board. The actual standard used in determining qualification is calculated by number of employees or average
annual receipts and varies by industry. For example, in the manufacturing and mining industries, a business can
have no more than 500 employees to qualify. Average receipts in most retail and service industries can total no
more than $5.5 million. The SBA size regulations are located at sba.gov. Most lenders can tell you immediately if
your business qualifies regarding income and number of employees.
Myth #5- SBA loans require a lot of collateral
Financial Fact- SBA lenders do consider collateral when reviewing
a loan application, but they also look at several other factors. Your character, your creditworthiness with respect
to you history of paying your debts, your management capabilities, and your equity contribution are just as
important as having collateral. SBA lenders.look at your business as a whole, and although they will not deny you
loan solely due to lack of collateral, it can be a contributing factor if there are other weak spots in you
application. Ultimately, your ability to repay the loan from your business's cash flow is the most important
Myth #6- SBA loans are loans from the Federal
Financial Fact - SBA loans come from commercial lenders who
participate with the SBA in SBA lending. The Small Business Administration is an agency of the executive branch of
the Federal Government. It establishes guidelines that lenders must follow when giving SBA loans and the SBA backs
each loan with a guarantee that eliminates some of the risk to the lender. The actual funds for each loan will come
directly from the financial institution. The SBA loans are backed, up to the amount of the guarantee, by the
Myth # 7- SBA loans are a loan of last resort.
Financial Fact- Lenders that offer SBA financing should be one of
the first places a start-up or small business owner goes when seeking a business loan (unless you have a friend or
relative willing to invest in your business). The express purpose of the SBA is to help Americans start, build, and
grow businesses in order to promote a healthy economy. SBA loans are structured with longer terms, lower down
payments, and can have lower rates than conventional commercial loans so small business owners have increased cash
flow. Going to a lender for a SBA loan is especially valuable for business owners seeking loans who may not have
collateral required with typical commercial loans. There is a reason the SBA is the largest single financial backer
of U.S. businesses in the nation.
You need to assess your business's current health and growth
potential. Would it benefit your company if you refinanced old debt? Could you increase business with more
equipment? Would a facelift bring in more customers? Would a combination of SBA financing with commercial financing
for accounts receivable and inventory help you succeed?
It is critical to your business that you know not only when to
seek financing, but how much you will need, and what is available. Many businesses suffer of even fail because
their owners do not take out loans when they need to; or they fail because their owners do not borrow enough.
Understanding your options will help you determine these things, which can in turn help your business
Conclusion: An experienced Commercial Finance Broker can help you
separate the myths from the financial facts. They can find the best SBA loans. They can evaluate the best overall
financing structure for your particular situation with lower interest rates, longer payback times and lower upfront
costs. They can help you understand the big picture and create new opportunities for your consideration.
Copyright © 2007 Gregg Financial Services
Mr. Elberg is a licensed attorney and
licensed real estate broker. Gregg Financial Services is a full service brokerage for
commercial finance companies and banks that fund B2B businesses. Mr. Elberg arranges
funding from $25,000 to $50 million per month at competitive pricing, and works to reduce
your financing costs as your company grows. For more information about GFS, please visit
our website: http://www.greggfinancialservices.com