Most small business owners have considered financing at some point within the lifetime of their business. You’ll have considered expansion, buying new equipment, more inventories, purchasing land , or simply trying to find a replacement capital infusion. But the confusion surrounding an SBA loan may perplex or frustrate even the foremost astute entrepreneur. Conflicting information from your trusted advisors or the web might not help to bring you closer to separating fact from fiction.
There are many myths surrounding SBA loans. a number of these myths are substantial and powerful enough to discourage many small business owners from expanding, getting out from under onerous debt, or maybe staying in business. Understanding how an SBA loan works and the way to successfully get one for your business may be a matter of separating the facts from the myths. You’ll recognize yourself in a number of the subsequent misconceptions of SBA loans. You’ll finish this article more informed and in possession of the facts. The facts regarding SBA loans can assist you to be a far better and more successful small business owner.
The U.S. Small Business Administration (SBA) was created in 1953 as an agency of the government to assist, counsel, and protect the interests of small business concerns, to preserve free competitive enterprise and to take care of and strengthen the general economy of our nation. The SBA recognizes that tiny business is critical to America’s economic recovery and strength, to putting together America’s future, and to helping the USA compete in today’s global marketplace. Although the SBA has grown and evolved within the years since it had been established in 1953, the SBA mission remains identical. The SBA helps Americans start, build, and grow businesses. Through an in depth network of field offices and partnerships with public and personal organizations, SBA delivers its services to people throughout the USA, Puerto Rico, the U. S. Virgin Islands and Guam.
THE 7 MYTHS
Myth #1- All banks evaluate the risks of a SBA loan request with an equivalent viewpoint.
Financial Fact- Although all banks are subject to an equivalent SBA Guidelines, the principles are subject to different interpretations with reference to analyzing a specific loan request. Some banks could also be willing to allow greater risks. Some banks will take a more optimistic evaluation of the facts and your business’ future success. Therefore, choosing the proper bank for your SBA loan needs can make the difference between authorization and denial.
Myth #2- All banks offer the precise same forms of financing for SBA loans.
Financial Fact- Loan pricing and structure can vary substantially at different banks. Interest rates on SBA loans are supported by the prime rate plus a margin. Some banks are more competitive in price to be leaders in SBA lending. Some banks will carve-out a provision for assets and inventory financing from their loan agreement to allow additional third party commercial financing in addition to the SBA loan. For an equivalent loan, some banks would require additional collateral guarantees, like a lien on your house. Evaluating the adequacy of such additional collateral guarantees can also be subject to interpretation.
Myth #3- It takes too long to push through the bureaucratic procedure of SBA loans.
Financial Fact- This might be true if the bank must deal through the SBA bureaucracy. Many lenders have “delegated authority” to directly approve a SBA loan. They will provide a full written loan proposal within 48 hours, and a few provide a loan commitment within days of receiving a full loan package. Closing the loan depends on the precise requirements of every transaction, but takes not much longer than closing a standard business loan. If the loan requires an appraisal, this might add several weeks to the total time.
Myth # 4- SBA loans are just for start-ups or small companies, and not for “big” companies.
Financial Fact- The SBA defines a qualifying small business as “one that’s independently owned and operated and which isn’t dominant in its’ field of operation.” The SBA doesn’t discriminate between start-ups or established businesses, and company size requirements aren’t an equivalent across the board. The particular standard utilized in determining qualification is calculated by number of employees or average annual receipts and varies by industry. For instance , within the manufacturing and mining industries, a business can have not over 500 employees to qualify. Average receipts in most retail and repair industries can total not over $5.5 million. The SBA size regulations are located at sba.gov. Most lenders can tell you immediately if your business qualifies regarding income and number of employees.
Myth #5- SBA loans require tons of collateral
Financial Fact- SBA lenders do consider collateral when reviewing an application, but they also check out several other factors. Your character, your creditworthiness with reference to your history of paying your debts, your management capabilities, and your equity contribution are even as important as having collateral. SBA lenders look at your business using a holistic approach, and although they’re going to not deny you a loan solely thanks to lack of collateral, it may often be a contributing factor if there are other weak spots in your application. Ultimately, your ability to repay the loan from your business’s income is the most vital consideration.
Myth #6- SBA loans are loans from the federal government.
Financial Fact – SBA loans come from commercial lenders who participate with the SBA in SBA lending. It establishes guidelines that lenders must follow when giving SBA loans and therefore the SBA backs each loan with a guarantee that eliminates a number of dangers to the lender. The particular funds for every loan will come directly from the financial organization. The SBA loans are backed, up to the amount of the guarantee, by the SBA.
Myth # 7- SBA loans are a loan of last possible resort .
Financial Fact- Lenders that provide SBA financing should be one among the primary places a start-up or small business owner goes when seeking a commercial loan (unless you’ve got a significant other or relative willing to take a position in your business). The express purpose of the SBA is to assist Americans start, build, and grow businesses so as to market a healthy economy. SBA loans are structured with longer terms, lower down payments, and may have lower rates than conventional commercial loans so small business owners have increased income. Getting to a lender for a SBA loan is particularly valuable for business owners seeking loans who might not have collateral required with typical commercial loans. There’s a reason the SBA is the largest single financial backer of U.S. businesses within the nation.
You need to assess your business’s current health and growth potential. Wouldn’t it benefit your company if you refinanced old debt? Could you increase business with more equipment? Would a facelift usher in more customers? Would a mixture of SBA financing with commercial financing for assets and inventory assist you to succeed?
It is critical to your business that you simply know not only to how to look for financing, but what proportion you’ll need, and what’s available. Many businesses suffer or even fail because their owners don’t take out loans when they need to; or they fail because their owners don’t borrow enough. Understanding your options will assist you determine these needs, which may successively help your business flourish.
Conclusion: An experienced Commercial Finance Broker can assist you separate the myths from the financial facts. They will find the simplest SBA loans. They will evaluate the simplest overall financing structure for your particular situation with lower interest rates, longer payback times and lower upfront costs. They will assist you understand the large picture and make new opportunities for your consideration. Contact us here if you want to start the process!