SBA Loans: Separating Fact from Fiction

For small businesses looking for funding, a common option is the Small Business Administration (SBA) lending program. Through that program, the SBA works with private lenders, like Bell Bank, to provide loans to small businesses for a variety of purposes.

However, because there are different types of SBA loans, and because some banks have a “preferred lending” status while others do not, the SBA lending program is sometimes believed to be more complicated than it actually is.

Below, we separate fact from fiction when it comes to six common SBA loan myths.

Myth #1: SBA lending is only for new or struggling businesses

While SBA lending is a viable option for new or struggling businesses, most SBA loans are used to help finance mature, strong and growing companies. According to SBA data, 53% of SBA 7(a) loans in 2023 were used for existing businesses more than two years old.

SBA loans can be a great funding option to expand or grow your business whether you’re new or established. Compared to conventional business loans, SBA loans typically have longer repayment terms and lower down payment options. Longer repayment terms lead to lower monthly payments, which in turn helps businesses build more cash reserves to fund growth initiatives. That’s a benefit for any business.

Myth #2: The SBA loan application process can be a headache

In general, SBA lending typically only requires one form to be completed by the borrower. This is called the Borrower lnformation Form 1919, and consists only of yes or no questions that should take, on average, 5-10 minutes to complete. Anything required beyond that form is typical of any business loan request.

Additionally, working with a bank that’s been certified by the SBA as a preferred lender, such as Bell Bank, can make your loan process even more efficient and expedited. SBA Preferred Lenders are able to make lending decisions locally, which creates a quicker turnaround time and a better overall experience for you.

Myth #3: SBA loans are expensive

Rates on all commercial loans are risk-based, regardless of whether the loan is conventional or SBA. When viewed as a whole, the total cost of capital goes up approximately a quarter of a percent including the SBA guaranty fee. An SBA loan can offer additional flexibility in repayment terms, as well as a simple path to achieve traditional commercial financing. Considering those factors, perhaps it’s actually too expensive for some borrowers not to consider the SBA route as an option.

Myth #4: Businesses can only use SBA loans for simple transactions

SBA loans are not only for simple transactions, but can be used for complex transactions that require creativity and an 'out-of-the-box' approach. While SBA loans do have specific guidelines and requirements, they can be tailored to support the needs and goals of your business, whether you need funds for working capital, equipment purchases, real estate acquisitions or more.

Myth #5: SBA loans are not a good option for doctors or healthcare practice owners

SBA loans are designed for all commercial and industry (C&I) businesses, a category that includes healthcare. SBA loans can be a great option for doctors or healthcare practice owners and can be used to obtain working capital, purchase medical equipment, finance construction or renovation projects, and much more.

Myth #6: Businesses have to pledge all of their assets to get an SBA loan

While businesses are required to pledge collateral to apply for an SBA loan, the type and amount of collateral will vary depending on the loan type and other factors. It’s important to note that businesses and guarantors will never be required to pledge any personal assets other than real estate for an SBA loan. Additionally, the lack of collateral and/or insufficient collateral will never cause an SBA loan to be ineligible.