The Top 10 Misconceptions about SBA Loans

Originally Submitted on 10/16/2003.

What "everybody knows" about SBA loans is largely hogwash. Having arranged hundreds of such loans, I share herewith the ten most common misconceptions people have about this great source of small business capital.

1. It takes 9 to 10 months to get a loan through the SBA.

The SBA website claims a 38-day average. Our average is 45 days. The most common factors that delay loans are A) the applicant cannot qualify for life insurance, and B) the required landlord documents are difficult to secure.

2. Since the SBA guarantees the loan, the lender won't care whether it's really a good deal.

Bad deals don't get done. Period. The lender's underwriters have to like the deal. The SBA agrees to back many people who never get a loan because the underwriters decline the deal.

3. The SBA application is over 100 pages.

All we need from the borrower are six or seven pages--we complete the rest (many fewer than 100 pages).

4. You must have a house and other collateral to qualify for an SBA loan.

You really need only three things: A) a good credit history, B) the down payment, and C) the ability to run the business.

5. You must submit a professional, detailed business plan to secure an SBA loan.

This is rarely required, and when it is, it's usually less than 25 pages--only the key pieces matter.

6. No bank will do this loan--I already asked.

You asked banks, and they neither want or need to write SBA loans. Bank defaults run between 1.3% and 1.4%, and they shut down past that. SBA loan defaults are typically 8%.

7. SBA loans cannot be used toward leasehold improvements or goodwill.

Oh, yes they can--some acquisitions are mostly goodwill. Our acquisition loans are based on cash flow or profits. Start-ups usually contain many leasehold improvements.

8. The SBA will finance 100% of the loan, and I won't need a down payment.

Where do these notions come from??? We work with the most aggressive lenders in the U.S., and they're all keenly interested in your down payment--your "skin in the deal." If you are risking nothing, why should they risk anything?

9. My credit score doesn't count, because the SBA loan is insured by the U.S. government.

Reality: Your credit score will be examined by the lender, because it attests to your payment habits. Bad credit that can be reasonably explained might make it through; if it can't, it won't.

10. You must be declined by three banks in order to apply for an SBA loan.

Two good reasons not to go this route: A) when banks turn you down, your credit score tanks, and B) other lenders suspect that they're missing something--why won't anybody else write your loan?

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