The Great SBA Myth

There is a great myth in America about the SBA program.  Small business owners think that the SBA is a lender and if they get turned down for an SBA loan they’re done.  This is not true, and the myth needs to be debunked.

The SBA provides a government guarantee to a bank or a lender to encourage them to make a riskier loan to a small business than they otherwise would.  It’s like an insurance program to help the lender if the loan goes bad.

The bank or the lender makes the decision about what loan they want to approve or decline, for their own reasons.  And while they have hundreds of rules and regulations to comply with for the SBA program, they have a great deal of latitude in deciding how much risk they’re willing to take, particularly when it comes to how much collateral they will require to secure the loan.

Plenty of lenders use the program the way it was intended.  The idea is that they take advantage of the government guarantee to not require the perfect mix of collateral to make a loan.  But in the same vein, as a result of the great recession, many lenders have toughened up their collateral requirements – even with the SBA program.

Ultimately, every lender should make the decisions that they’re comfortable with.  But it should be abundantly clear to any small business owner that if one lender says no to them about an SBA loan, it’s possible that the lender down the street might say yes. 

Every lender should make this distinction clear if and when they say no to a borrower.

A small business owner should approach a lender with a complete package and be able to receive a preliminary answer about a loan within 24 – 48 hours.  And you should try at least three very different SBA lenders before they take NO for an answer.