In my years of helping business owners obtain SBA loans, I have heard many
misconceptions about the U.S. Small Business Administration's programs. These
myths have ranged from who is eligible to receive a SBA loan to horror tales about 4 to 5 month SBA loan (in)decisions. Many of these myths originated from innocent conversations from well-meaning, yet misinformed, bankers who will say anything to placate a customer.
I know from my experience that the one of nation's largest banks (Citibank) had only 2-3 people who truly understood the SBA loan programs. The chances of any customer/borrower speaking with these "experts" was minimal. Thus, the applicant usually heard the "song and dance" story from the local bank loan officer, who may do only 3-4 SBA loans per year. I urge you to beware of anyone who is not an expert in SBA lending- they generally know just enough to hurt you and your business.
Let's review some of the common myths about the SBA program:
Myth #1: "The SBA program is only open to minorities."
Myth #2: "The SBA won't help a small operator, like me."
Myth #3: "The SBA is very expensive money. They charge high rates and fees."
Myth #4: "It will take 4-5 months to obtain a SBA loan."
Myth #5: "The SBA does not lend to my industry."
Myth #1: The SBA program is only open to minorities.
While most government programs are designed to assist the poor, elderly and the frail, the SBA's mission is to support America's small business owner. There are a few business eligibilty requirements for the SBA 7(a) program, yet none are based upon a business owner's age, race or sex. The SBA does not discriminate in its lending decisions.
Myth #2: The SBA won't help a small operator, like me.
The truth is that you (the small business owner) are the person that the SBA was
designed to support. The SBA can provide a loan to roughly 80% of America's
businesses. The SBA eligibility requirements are industry-specific. They generally
utilize two factors in determining eligibility: annual sales size and number of
employees. While each case must be reviewed individually for eligibility, businesses
with annual sales under $5 million and under 250 employees are generally eligible for SBA loans.
Myth #3: The SBA is very expensive money. They charge high rates and fees.
The SBA 7(a) loan program rates are generally the Prime Rate plus 1 1/2% to Prime Rate plus 2 3/4%. The maximum rate is 2.75 points above the Prime Rate. While typical bank loans will possibly be at a 1 or 2 points above prime, the SBA is lending to a business owner that cannot obtain the same loan terms from a traditional bank. I usually ask, "Would you prefer a loan that you can't have for Prime plus 1% or a SBA loan that can be approved for Prime plus 2.75 points above Prime?" I'll take the money and get back to managing my business!
Additionally, the SBA is a long-term lender. They will provide loans with the longest terms available... general terms are as follows: for Working Capital, 7 years; for Equipment/Inventory, 15 Years; and, for Buildings/Property (including property improvements), 25 Years.
Myth #4: It will take 4-5 months to obtain a SBA loan.
It's best to answer this with a real world example. Last year, my client signed the loan application on July 16th. The lender issued a conditional commitment on July 23rd. The SBA approved the loan on August 18th and the client closed on the loan on August 22nd. From application to loan pay out in 37 days!.... this does not have to be a long drawn out process. Unfortunately, it is usually the lender (and not the SBA) that makes it a 4-5 month process.
Myth #5: The SBA does not lend to my industry.
The SBA lends to all industries, subject to their size eligibility requirements, with the exception of businesses involved in gambling, lending, leasing, SBA loan packaging, religious activities and not-for-profit institutions. The SBA maintains a sophisticated database on industry financial performance (via IRS records) and may compare your loan application to the statistics and to their experience with your industry. However, they do not actively decline a loan from a specific industry, except those that are specifically considered ineligible business concerns, as noted above.
I hope that this will help you become more informed about the SBA and its lending
practices. As I have quoted before, it is the "crown jewel" of U.S. Government
programs because, if used properly, it makes business owners more successful,
creates critical job growth and reduces the need for citizens to be dependent on our government.
If you have any questions about SBA lending, please call Dominick Bencivenga at (631) 673-1302 or email him at firstname.lastname@example.org