8 Myths About Small Business Loans

May 23, 2024

While most are aware of the Small Business Administration (SBA) and the loans it provides to get small business owners the capital they need to start or expand their businesses, many misperceptions exist about SBA loans themselves – from eligibility requirements to applying, terms, uses and more. To help set the record straight and ensure business owners understand how an SBA loan can provide financing they wouldn’t otherwise qualify for, the SBA lending experts from BayFirst have pulled together (and debunked) the top eight myths about SBA loans.
 
Myth No. 1: SBA loans take forever to process. Like all loans, SBA loans require a decent amount of documentation during the application process. However, if you choose a lender that specializes in small business lending – such as BayFirst – the entire process is streamlined, and the speed at which funding can be delivered might surprise you. Currently, BayFirst’s fastest Bolt Loan (up to $150,000) can be funded in days, not weeks, while larger loans can also be expedited. 
 
Myth No. 2: The lender you choose doesn’t matter. When it comes to SBA loans, not all lenders are created equal. First, not every bank participates in SBA lending. Secondly, of those that do, not all have Small Business Preferred Lender Program status. Those considered Preferred Lenders by the SBA, like BayFirst, have a proven track record in processing and structuring SBA loans and can approve a loan without waiting for the SBA’s approval, meaning you can expect faster funding, better advice, a streamlined process, and fewer hiccups along the way.
 
Myth No. 3. The SBA itself lends money directly to small business owners. Though the SBA partially guarantees the debt – allowing the bank to provide credit for a borrower who may otherwise not qualify for a loan with the same terms – it is the bank that funds the loan.
 
Myth No. 4: Any small business can receive a small business loan. To qualify for an SBA 7(a) loan – the most popular SBA loan – your small business must be for-profit and operate within the United States. But there are some that are still prohibited (including gambling businesses, government-owned organizations and real estate investment firms), and your eligibility will ultimately be determined based on your business’s financial standing well as the chance of you paying back the loan, as determined by your lender.
 
Myth No. 5: SBA loans require extensive collateral. While the SBA does require that lenders take certain available collateral (such as liens on real estate with equity), the SBA program also dictates that borrowers without such collateral who are otherwise creditworthy should not be turned down due to the lack of collateral.
 
Myth No. 6: SBA loan products are not borrower friendly. SBA loans were created to be borrower friendly. When compared to conventional loans, they generally have more flexible requirements and longer repayment terms, and never involve balloon payments.
 
Myth No. 7: SBA loans are only for startups. Although some SBA  can be used to launch a business, they are not for startups exclusively. Many SBA loans are used to improve or expand an existing business too.
 
Myth No. 8: Loan uses are limited. SBA loans can be used for almost all your small business needs, including long- and short-term capital, the purchase of equipment, buying real estate, refinancing debt, marketing costs, hiring and more. For a more extensive list of possible uses specific to SBA 7(a) loans, check out our other Big Ways an SBA 7(a) Loan Can Benefit Your Small Business.
 
Is there something else you’d like cleared up about SBA loans? Contact us today by filling out the form below to discuss the program and your options in greater detail. Ready to apply for an SBA loan of your own? You can start online here.