8 Myths About SBA Loans Busted
Do you know what getting an SBA loan entails? There are quite a few myths out there that can confuse and undermine business owners looking for financing solutions. Here are eight common myths about SBA loans debunked.
1. The Small Business Administration Is the Lender
The SBA doesn’t provide loans. Instead, it guarantees a percentage of the financing, thereby encouraging banks to lend to small businesses. This is just one of the many programs the SBA facilitates to support small business owners.
2. All Small Businesses Automatically Qualify
Before you apply for an SBA loan, your company has to meet the eligibility requirements. This includes meeting sales and employment standards, is independently owned and operated, and not dominating the industry.
3. An SBA Loan Is the Same as a Grant
A grant is a money awarded by the government without the expectation that you’ll pay it back. An SBA loan does require you pay back the borrowed amount with interest. If you think your organization qualifies for a grant, that’s a completely different application process involving other government agencies or third party foundations.
4. SBA Loans Never Require Collateral
Many lenders require collateral for SBA loans because they are obligated to do so by the SBA. The type and amount of collateral, however, usually depends on the terms of each individual loan.
5. You Should Expect High Fees and Interest Rates
An SBA loan generally has lower rates and fees than other loan types. This is one of the major benefits specifically designed to help small businesses that otherwise wouldn’t have the resources for financing.
6. There’s More Paperwork Than If You Were Applying for a Traditional Loan
All loan applications require extensive paperwork, and an SBA loan is no different. While there may be additional bureaucratic processes your application has to undergo, you probably won’t have to worry about overseeing that yourself. Lenders generally take care of those requirements.
7. SBA Financing Is for People With Bad Credit
You have to qualify for an SBA loan just as you would traditional financing. While SBA lending is designed to remove obstacles that keep small businesses from accessing capital, companies still have to prove they’re capable of repaying the debt within the loan terms.
8. You Only Need an SBA Loan If Your Business Is in Trouble
While an SBA loan can help companies that are struggling financially, this financing is also beneficial to thriving enterprises. You can use the capital to grow and invest in your future, thereby building an even stronger business.