Wall Street Journal Debunks SBA Loan Myths

 

A recent article by Marshall Eckblad in the Wall Street Journal (“Debunking the Myths About SBA Loans”) took a good look at some of the more pervasive mis-thoughts about SBA loans. I wanted to visit his explanations and add some of my own thoughts in the process, since I have worked with SBA loans for over thirty years. These common misperceptions can result in business owners missing out on possible funding or making mistakes that cost them in the short and long term.

SBA guaranteed loans are designed primarily to help businesses start, grow, and expand their reach.

 
One common myth is that an SBA loan is a “loan of last resort” and should only be used when all other attempts at funding have failed. In truth, SBA guaranteed loans are designed primarily to help businesses start, grow, and expand their reach. Part of the confusion comes from the SBA emergency programs for disaster relief and part from the programs for disadvantaged businesses. And while these may appear to be a majority of the SBA business at times, due to media coverage, as Eckblad points out, “the SBA's bread and butter is facilitating loans to viable businesses.” SBA 7(a) loans help new and expanding businesses get off to a good start, while 504 loans can help a business purchase commercial real estate.

A second misperception is that lenders face no risks with SBA-guaranteed loans, so they should have no issues with approval. Connected with this is the belief that the SBA actually lends money through the bank. While lenders might wish this were so, a traditional 7(a) loan only guarantees 75% to 85% of the loan with the remainder on the lender. Now, a 25% risk is better than a 100% risk, but it is still some risk. And with the concerns in the industry over what the federal government wants “risk” to look like, some lenders are still hesitant even with SBA backing. Because the lender has “skin in the game,” the applicant must show that he or she has a viable business as well as a strong plan for moving forward.

Two other myths Eckblad mentions can be connected - that SBA loans take forever to close and that they can bury the business owner in paperwork. Of course, any loan seems to take forever when you are waiting to hear if you have been approved, and paperwork always seems onerous when you are in the midst of it. This is where the help and advice of an expert in the lending industry can be of great assistance. Having someone who knows the ins and outs of the application and funding process can make a difference in the stress and frustration levels.

One last myth, which Eckblad does not touch on, is the belief that SBA loans are not for startup businesses. As I pointed out in a previous post, an SBA loan can be an excellent funding vehicle for a startup business, particularly a startup franchise. Granted, a new startup is going to need a lot more going for it than an existing business, but with the right backing, planning, and presentation even a new idea can move forward. Again, your best bet is to get together with and expert and see if your business idea has enough merit to apply for an SBA loan or if a different funding method should be used. You can contact me and we can set up a time to discuss your business, its needs, and the best direction for you to go.

Craig G. Francis is the owner of Francis Financial and The SBA Loan Store. He has been a top producer of SBA Loans since 1981, and has worked with Dun & Bradstreet and Bank of Commerce. Craig Francis has the expertise to steer clients through the often confusing rules and regulations associated with SBA Loans, having helped over 2,000 businesses acquire over a billion dollars in loans. He can be contacted through CraigGFrancis.com, SBALoanStore.com, on LinkedIn, or at 888-666-9722.