Five Things You Need to Know About SBA Loans
If you’re an entrepreneur looking to start a new business or a business owner hoping to move your company to the next level, the United States Small Business Association (SBA) can help you get there.
Before you decide that SBA loans are right for you, small business owners need to be aware of several stipulations attached to the government-backed loans. Joseph Anthony of Microsoft® compiled a list of five things all small business owners should know before applying for additional capital.
1. What is an SBA loan?
Many entrepreneurs believe SBA loans come from the U.S government – that is not true. Banks, credit unions and other lending institutions actually make the loan and the SBA guarantees it. Because the government backs the loans in case of default, lending institutions are more willing to offer loans to small businesses that were once regarded as too risky.
2. This Will Take Some Time and Paperwork
“Getting a loan guaranteed by the SBA means getting involved with the government, and that means some extra time on the paperwork and the overall loan process,” Anthony said. Without the SBA backing, many banks and credit unions can process a loan within 24 hours if all the paperwork is filled out properly.
3. You Might Not Get All the Money at Once
According to Anthony, just because your small business was approved for an SBA loan doesn’t mean that you’re going to receive a one-time, lump sum check for the entire loan immediately. Many lenders require businesses to provide invoices and purchase orders before releasing a portion of the loan to the company.
4. SBA-backed Loans May Have Higher Rates than Conventional Loans
Many business owners assume that a major benefit of SBA loans is lower interest rates, but that is not the case. The SBA guarantees the loan in case a business cannot make the payments, thus, encouraging lending institutions to offer loans to risky ventures. These institutions are taking upon themselves risks they typically would not incur. Banks and other lenders can charge higher rates because of the SBA guarantee.
5. The SBA Doesn't Give Special Treatment to Minority-owned Businesses
Although the SBA wants minorities and women to be made aware of SBA loans, there is no separate pot of money set aside for minority-owned businesses. The SBA simply makes an effort to advertise the benefits of SBA loans to minorities, but makes its decisions based on certain criteria – race, gender and ethnicity of business owners are not included in the SBA’s set of loan qualifications.
In conclusion, there are pros and cons to SBA loans and it’s important to consult lending experts to find the most appropriate decision for your business.
The information contained herein may not represent the views and opinions of Zions Bank or its affiliates and is intended for informational purposes. It is presented for general informational purposes only and does not constitute tax, legal, investment or business advice.