Common Myths About SBA Loans

I've recently had a ton of questions regarding the SBA and how they can help people fund their businesses and I thought today would be a good day to dispel some of the myths that I've been hearing.

If you get an understanding on what the SBA does and doesn't do it will help you decide whether you should seek them out for funding.

Here are some common myths about SBA loans:

1. The SBA oversees a pool of free money.

First and foremost, says Jim Hammersley, director of the Office for Loans Programs at the SBA, "We don't make grants." He regularly hears from business owners looking for free money, which is not what the SBA is about. "We do look for people to pay loans back." The agency also expects people to
put up some collateral, though a lack of collateral in and of itself is not grounds to turn down a loan.

The SBA guarantees loans based on factors common to any credible lending institution: a well-thought-out business plan, management experience, good character, and an owner's willingness to take a stake in the business, among others.

2. SBA interest rates are too high.

According to Tom Burke, Wells Fargo's SBA-lending manager in Minneapolis, the SBA puts ceilings on interest rates. For instance, the maximum rate is prime plus 2.25% for a loan of less than seven years and greater than $50,000. If the term is seven years or greater and for more than $50,000, the maximum is 2.75% over prime. "The SBA wants to make sure money is as cheap as possible," says Burke. Interest rate tiers are based on the loan's size, and rates are negotiable up to the ceilings, he adds.

3. You have to be a business in distress to qualify.

A business doesn't have to be failing to get its loan approved, according to Burke. "The SBA is not a bail-out program," he says. Usually, an SBA-guaranteed loan helps a business owner bridge a gap: a lack of collateral, for example, or the need for an extended loan term.

4. The SBA is only for start-ups.

While SBA lenders do make loans to start-ups for the purchase of business assets including the purchase of existing businesses, it's also a great resource for established businesses looking to secure working capital. Some of the biggest borrowers in the SBA's real estate loan program are established dentists and doctors who want to buy offices, says Jim Roby, the Florida regional government lending products manager for Bank of America, of his bank's SBA-lending program. In general, banks don't make term loans for working capital; most only provide revolving lines of credit, says Burke. "The SBA wants the small-business owner to succeed," he adds. "The loans are good for fast-growing businesses who need working capital, too."

Hopefully that clears up some things for you guys considering using the SBA to help fund your business.

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In it you'll learn a ton different ways to secure the capital you need FAST!

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His reputation for helping others succeed is well known in the business financing world.  Through his unique methods for raising capital he has helped his students raise over $456 Million dollars for their business ideas. You can find his insight and expertise when you visit his website www.fundmyideas.com or when you read his blockbuster course The Definitive Guide To Raising Capital® -- How To Fund Your Business In 30 Days Or Less!