Business owners should not let misconceptions stand between them and the opportunities of loans guaranteed by the Small Business Administration
by David Malone, CEO & President, Community Bank
When many business owners hear the words “SBA loan,” they conjure up negative images. Government loan. Red tape. Restrictive guidelines. And the worst stigma: last-ditch lending for businesses that canʼt get any other type of loan. All of these “synonyms” for SBA loans are misconceptions. Small businesses need to understand SBA loans and the opportunities they present for the stability and growth of their enterprises. Letʼs start with the basics. The federal government does not issue SBA loans (disaster relief loans are an exception). The Small Business Administration, a federal agency founded in 1953, guarantees business loans issued under its program guidelines by approved lenders. Your local business bank is the source of the loan. The SBA stands behind you, the business borrower, to reduce the risk to the lender and improve your ability to obtain financing.
You may think that obtaining an SBA loan is a drawn-out process full of extra forms and reviews. When you work with a financial institution that specializes in SBA loans, you will have the pleasure of working with professionals trained in this type of lending. These SBA teams know how to move things along. No hidden bureaucracies. No mountains of mysterious paperwork. When itʼs done right, itʼs hard to distinguish an SBA loan experience from any other type of business loan. As for eligibility for SBA loans, many businesses and lending scenarios qualify. To repeat, it is not a last-ditch program. However, the SBAʼs criteria are subject to change, making it important to consult with a knowledgeable lender. A good SBA loan team, as described above, is versed in the latest guidelines from the federal government. They will be able to pre-qualify you in a prompt manner.
There are a variety of SBA loan programs that can help you achieve a variety of business goals.
These programs include:
- Lines of credit, also known as SBA Express, revolving financing drawn upon as needed for business expenses.
- Commercial real estate purchases, under the 7a or 504 programs, which can have down payments as low as 10% and terms as long as 25 years.
- Business acquisitions, which include purchasing another business or buying out an existing partnership.
- Equipment purchases, with loan-to-value up to 100% and terms up to ten years depending on equipment life cycle.
- Debt refinancing, with 100% payoff of existing debt if its rates and terms are deemed unreasonable (e.g., high interest, short maturity).
- Business start-up/franchise purchase, providing working capital and allowing you to cover costs such as leasehold improvements, equipment purchases, and franchise fees.
So remember, when you apply for an SBA loan, you wonʼt be doing business with the government. Youʼll be doing business with your local lender. The SBA stays in the background, a valuable partner to borrower and bank alike. An SBA loan isnʼt a handout. Itʼs a hand up to good businesses