SunTrust Business Owner Research indicates that many business owners do not seriously consider Small Business Administration (SBA) loans when looking for financing. Digging into the survey findings, the data reveals a set of negative assumptions about SBA loans that do not always match the reality of what is available. Here are the top reasons business owners give for not taking advantage of SBA loans.
Myth 1: You don’t qualify.
Insufficient operating history, lack of collateral or down payment, inability to fund short loan term payment with existing cash flow -- these are all reasons that many small businesses do not qualify for traditional loans. However, these are the exact reasons that businesses may qualify for an SBA loan. Many SBA loans offer flexibility for longer terms to make payments smaller and more affordable. Others require no collateral or down payment conditions for certain types of loans, including financing for retail, real estate or businesses owned by veterans. Undercapitalized growth companies are especially in a sweet spot for the flexible terms and requirements of SBA loans.
Myth 2: SBA lines of credit require too much time-consuming paperwork.
Recent government programs designed to accelerate small business lending have simplified the process, so that preferred bankers will actually help business owners complete the paperwork. Another business owner resource is local Small Business Development Centers (SBDC) where counselors from the Service Corps of Retired Executives or SCORE, a nonprofit educational and mentorship group that works with the SBA, will help you prepare a business plan, and introduce you to quality bank and non-bank financing institutions with a reputation for supporting small business.
Myth 3: SBA loans will not meet your timeline for needing money.
Owners don’t understand how fast SBA loans can happen, particularly given recent programs designed to accelerate and streamline small business lending with preferred lender banks. Many banks with SBA expertise have streamlined their underwriting processes and secured “fast track” status for loan guarantees from the government. It is important to look at the experience and volume of SBA loans written by the lending institution.
Myth 4: SBA loans are for narrow circumstances.
The SBA backs a wide variety of loans, for example:
- Federal microloan programs for up to $35,000 to startup “prebankable” businesses that are not yet ready for traditional bank financing.
- U. S. Department of Agriculture loan programs are available in many rural areas with a wide range of state and county level options.
- Veterans and their spouses can receive preferential treatment with loans such as the SBA Patriot Express loan program that delivers favorable terms, and the SBA 8(a) program that helps them compete for government contracts.
- Exporters may get loans quickly on favorable terms with SBA Export Express loans.
- Commercial real estate owners may qualify for low down payments and flexible spending options.