|5 Myths About SBA|
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.
MYTH #1: SBA is a lender of last resort.
FACT: 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. In 2008, during the height of the financial crisis, the SBA facilitated loans to nearly 70,000 businesses.
MYTH #2: Lenders face no risk.
FACT: 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 75% and 85%, so the bank swallows up to 25% of any losses from the loan. By contrast, loans written through the SBA Express program—primarily for veterans and businesses in economically distressed areas—carry a 50% guarantee.
MYTH #3: It takes forever.
FACT: In reality, the programs typically involve a "six-week process, assuming the borrower is prepared on the front end.
MYTH #4: My business is successful and doing well. I don’t need an SBA loan.
FACT: Many small business owners use SBA. Benefits include longer terms, lower down payments, increase cash flow, and flexible repayment options.
MYTH #5: You will get buried in paperwork.
FACT: The paperwork is pretty much consistent with what the bank would be asking for a conventional loan, such as financial statements, tax returns, etc. For the borrower who still feels overwhelmed, many lenders recommend turning to a Community Development Financial Institution. These groups can help owners figure out which kind of deal best fits their needs and then prepare an application.