Misconceptions abound about the loan programs offered by the U.S. Small Business Administration (SBA), potentially discouraging many small business owners who could benefit from these programs from even considering them. Knowing the truth about these loans expands your options when you need them most

1. The myth: The loans are only for borrowers who have bad credit. The truth: The loan program is intended to help borrowers who do not meet requirements for conventional loans, but the SBA does consider the borrower’s business plan and credit history as part of their application.  Because the government will guarantee the top part of the loan banks are willing to fund loans on real estate that may not have sufficient cash flow or even sufficient appraised value to qualify for a non-guaranteed bank loan.
2. The myth: The loans are made by the SBA directly to small business owners. The truth: The SBA does not actually issue loans, rather they guarantee a portion of the money that the bank is willing to lend the borrower, usually between 50 and 80 percent of the total loan amount. This guarantee helps reduce the risk for the lender and increase a borrower’s chance of being approved.
3. The myth: The loan applications entail loads of extra paperwork. The truth: The loan program only requires slightly more paperwork than a conventional loan and borrowers have the option of working with an SBA Preferred Lender who provide assistance with the application.
4. The myth: The loan processing is interminable. The truth: The loan approval process only takes three to five days through the SBA. Borrowers who apply through the Preferred Lender Program can be approved even more quickly. The SBA also offers an expedited turnaround with SBAExpress for 7(a) loans, which is explained here.
5. The myth: The loans have more fees and higher interest rates. The truth: The only fees that can be charged for SBA program loans are guarantee fees; borrowers are not charged application or bank fees. The guarantee fees are usually 2 to 3.75 percent of the guaranteed portion of the loan and can be spread out over the term of the loan. Interest rates are also capped by the SBA program and borrowers can choose between floating or fixed rates. Other benefits of the loan program include more time to repay the loan, lower down payment requirements, a variety of repayment options, and no balloon payments.

This blog was written by Bob Amter, President of Montegra Capital Resources, LTD., a Colorado hard money lender.  [google_authorship] has been in the private capital lending business for 41 consecutive years.