3 Things Nobody Tells You About SBA Loans

Does your small business need a financial boost? The Small Business Association (SBA) Loan program has helped countless businesses over the years. But it is not a perfect fit for every business owner.

No two businesses are exactly alike and no two have the same financial situation. This is why some love the SBA for helping them out, while others have found their loan process frustrating.

To help you figure out whether or not an SBA loan can help your business, we will explore some of the most common issues that some entrepreneurs have faced, and you can decide whether or not this will be a problem for you.

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1. Relatively Strict Loan Requirements 

The SBA loan program will match you with a private lender and not a major bank. Private lenders typically are more lenient with who they will work with. Major banks are turning down about 80% of their small business loan applications, but, the SBA is still turning down about half. 

First and foremost, if you’ve been in business for less than 2 years, you do not qualify. You may be able to get a loan if you have amazing credit and history of launching other businesses. However, failing that, if you have been in business less than 2 years, you should explore other options.

If you’re a new(er) business or you fall short of the SBA’s loan requirements in any way, you might be better of looking into small business funding from Payvant Capital and consider a merchant cash advance instead of a loan.

You can qualify for an MCA if:

  • You have been in business for 6 months
  • You have at least $10,000 a month in deposits

This could be the way to go if you don’t meet the SBA’s criteria.

2. Equity Requirements

If your credit is good and your business is promising, you may still not qualify for an SBA loan if you don’t have enough equity in your business. This has been a major stumbling block for a number of start-ups that launch with very little equity and not a lot of assets.

The SBA’s standards require:

The owners must have enough of their own money at stake in the business:

(a) For a New Business (or when buying a business) you should have approximately one dollar of cash or business assets for each three dollars of the loan.

(b) For an Established Firm, the after-the-loan business balance sheet should show no more than four dollars of total debt for each dollar of net worth (i.e., a 4:1 Debt/Equity ratio – may vary by industry).

Would this be a problem for you? Your best bet may be to investigate other options.

3. Longer Wait Times

Do you need your money in a hurry?

The SBA loans have more flexible loan criteria than a major bank loan. However, their application process is just as long and involved. You could be looking at a few weeks’ worth of paperwork and email strings before you even get an answer. And there is no guarantee that this answer will be “Yes” after all that time. 

As you can see, the SBA loan program isn’t for everyone. If your business has unproven credit, a lack of equity, or an urgent need for funding, this might not be the best route for you to go.

However, you still have funding options (such as the MCA) if you don’t qualify for an SBA loan. Just because they say no, doesn’t mean you have no options!

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.