Myth: SBA loans take too long.
Fact: The SBA is aware of small business owners' time and of how busy they are. Certified Development Companies (CDCs) work quickly and efficiently. CDCs can often examine borrowers' underwriting documents in only 48 hours.
If an SBA loan's approval process takes more time than this, it may be that a particular lender is holding it up.
Myth: SBA loans have too much paperwork.
Fact: There have been great efforts to streamline the overall application process. In most cases, the required documentation for an SBA loan approval nearly matches that of any ordinary 80 percent loan-to-value conventional commercial loan. Some borrowers have even found this to be less paperwork than what they faced when they refinanced their home loan.
Myth: SBA loans are only for the worst borrowers or for startups.
Fact: Unlike other SBA programs, 504 loans have no revenue or employee limits and they cap out around $6 million for most projects. Some SBA programs are designed for startups or for businesses still in their infancy. Overwhelmingly, however, 504 loans are not meant for new businesses that should be more concerned with using their capital to establish their place in the competitive landscape. Many 504 loan borrowers are companies that have tens of millions of dollars in sales.
The equity savings gained from SBA 504 loans are meant to provide economic development. Unhealthy companies simply cannot do this. Plain and simple, this loan program is a means of leveling the playing field for healthy small businesses contemplating commercial property ownership.
Myth: SBA loans have too many fees.
Fact: This myth has been unjustly applied to all programs under the agency's umbrella. While this is the reality for the 7(a) loan's multi-tiered fee system, 504 loans continue to see fee reductions. Origination fees for SBA 504 loans average about 25 to 50 basis points higher than ordinary commercial bank loans. However, even these fees can usually be negotiated for borrowers with better debt-service-coverage ratios and personal credit. Even so, these slightly higher fees seem reasonable and negligible to most business owners who understand that getting the highest cash-on-cash return available to them is paramount. This type of financing is tailor-made for small business owners who want to decide where and when to best use their hard-earned capital yet still enjoy the advantages of commercial property ownership.
Myth: SBA loan rates are higher than conventional lending.
Fact: SBA 504 loans nearly always have fixed rates. The effective, blended interest rates are competitive with conventional bank financing. In addition, the government-guaranteed second mortgage on a 504 loan is the least-expensive money available for typical small business owners who want to own their commercial real estate.
Myth: All SBA lenders are the same.
Fact: Most credit criteria vary from lender to lender. For example, different lenders may focus on financing varying property types, or they may have differing requirements for management experience or historic cash flow. It can be tempting to choose a lender based on rates alone, but other factors are also important.