The Small Business Administration has been a key player through the financial crisis. But many loan officers say small-business owners don't understand exactly how the agency's programs work, and that can hurt them when it comes time for a loan. Here are some popular myths about the SBA, along with reality checks.
It's common to hear the SBA described as a "lender of last resort." In some ways, there's good reason for this: The agency's Office of Disaster Assistance speeds funds to borrowers in regions hammered by natural disasters, and it funds Community Development Financial Institutions that make loans to borrowers with higher-risk profiles. But the SBA's bread and butter is facilitating loans to viable businesses.
Borrowers often assume banks aren't taking any risks with SBA loans and don't understand why lenders would reject them. Banks issue SBA loans according to government guidelines and receive some protection against losses if the borrower defaults. Loans issued through the popular 7a program carry a guarantee between 50% and 80%, so the bank swallows up to 25% of any losses from the loan. By contrast, loans written through the SBA Express program carries a 50% guarantee.
Lenders say borrowers often assume it will take months to close an SBA loan. In reality, the programs typically involve a six-week process, assuming the borrower is prepared on the front end. Generally, lenders will need the following documentation to evaluate your loan request: