Right now is, hands down, the absolute best time to borrow money to scale your business through any of the SBA’s lending programs. In fact, the SBA is actually paying small business owners to borrow money by subsidizing loan payments on new and existing loans. Most people have heard about PPP and EIDL relief as part of the CARES Act, but what has gotten lost in the fluster and rollout of the disaster loans is that the main “Flagship” programs including the SBA 7(a), 504 and Express loans, got put on steroids for a limited period of time with the December 2020 stimulus package.
By way of background, I’m a younger guy who ‘hacked’ the SBA credit matrix at a young age, figuring out how to navigate the confusing world of SBA financing and leveraging it to purchase three businesses before I turned 21. I recently exited from those businesses and now have a financial education & consulting business where we help business owners by educating them about SBA financing as well as assisting them with where/how to structure and secure the ideal financing for their businesses and projects. I’ll walk you through the specifics on why they’re actually paying business owners to borrow money right now, but first I wanted to cover the Top 5 Myths about getting SBA financing. SBA loans are really the absolute best option for permanent capital solutions for small business owners in the US. You can borrow up to $5M through the SBA’s 7(a) loan program for almost any business use including business acquisitions, partner buyouts, growth and working capital, real estate purchases/renovations and equipment financing, debt refinancing or startups. Now while many people have heard about the SBA’s loan programs, a lot of business owners shy away from SBA loans because they’ve repeatedly heard complete myths and bad information about SBA loans either from a friend who had a bad experience or from a banker who doesn’t do much SBA lending. Myth 1: SBA Financing is Hard to Get
The biggest misconception that I see is that people believe SBA financing is difficult to obtain. The main reason for this is that people approach the wrong banks for SBA financing and get frustrated when they’re not able to help. They then assume it has to do with SBA loans as a whole instead of it being a problem that specific lender’s inability to close that type of deal. Large banks (ones I won’t name but their names sound like Fells Wargo, Aank of Bmerica, etc) rarely have competitive offerings for SBA financings because it doesn’t fit their bank’s strategy. They’re multi trillion dollar asset banks and often write single credit facilities to companies for $100, $200 even $500M. Banks that do $200M a year in SBA volume are considered a top 20 lender by dollar volume.
If you are working with the right lenders from the start of your request, you’ll have an infinitely easier time getting financing because the smaller more agile lenders have a very refined and very profitable business model for their bank by doing SBA loans. Most SBA VPs (read: loan salesmen) are making 1-2% of every loan they make as their commission, trust me they have EVERY incentive in the world to get you financed, especially if you come waltzing in asking for over $1M.
Myth: 2: My Business Won’t Qualify for SBA Financing
Quick Eligibility Check:
Does your business operate as a for profit in the US? If yes, then there’s a 99% chance your business will be eligible for SBA financing. The ineligible business list is very narrow - basically as long as you don’t run a brothel, marijuana dispensary, real estate flipping business or MLM, you’re good to go. You can read more on the specifics here if you want to read exacts, but almost all businesses are eligible. Even if you need more than $5M and aren’t sure your business qualifies as “small” SBA financing is probably an option for you. https://www.sba.gov/loans-grants/see-what-sba-offers/sba-loan-programs/general-small-business-loans-7a/7a-loan-program-eligibility
Myth 3: Tons of Collateral or Cash Is Needed to get SBA Financing
A lot of this myth is perpetuated by the same thing as Myth #1, lenders giving bad info to prospective borrowers. The SBA’s 7(a) own SOP even says explicitly that “..a loan request is not to be declined solely on the basis of inadequate collateral.” A lot of lenders conveniently ‘miss’ this memo and continue to spread bad info to borrowers, only perpetuating the myth that you have to have a ton of collateral/cash to get SBA financing. Part of this is their ‘soft’ way of declining a loan, because they don’t want to ruin a potential relationship to sell you other banking products like credit cards, checking accounts, etc. Bankers often throw the SBA under the bus as a convenient scapegoat, don’t fall for this. The real reason a bank will decline with this excuse is because they just don’t understand SBA that well.
Myth 4: SBA Loans Require a TON of Paperwork
Surprisingly there are only 2 SBA forms for an SBA loan application. One is called a Form 1919, the other is a Form 413. One is a personal financial statement (any loan you have to fill out will ask this) and a borrower background document that asks you basic demographic questions like your ethnicity, age, etc. Everything else is the same as any other loan request, 3 years of financials on the business and yourself, a credit check and a budget/breakdown on use of the money and a narrative on why you need it. I recently helped a friend of mine get financing for buying a partner out of a business he had been running for over 15 years and he commented that he was surprised how easy it was to actually get the paperwork done. You can easily get this filled out in an afternoon if your financial situation isn’t too complicated with 10 brokerage accounts and 10 rental properties. Obviously, having your accountant on speed dial for these applications is critical the more complex your business or personal financial holdings are when you apply…
Myth 5 : SBA Loans Take Months To Close
Again - this is one of the myths that perpetuates because of incompetent lenders. If you work with an SBA participating bank that actually specializes in doing SBA loans, you can close some loans in less than 3 weeks from application to funding. This time frame is the norm for Express and 7(a) Small Loans 4350k and below, and regular 7(a)/504 loans normally close in 45-60 days from application to funding. Experienced SBA bankers who work at banks will tell you that the biggest hold ups for closings are when the borrower does not have all their financial documents, real estate purchase documents, or insurance pieces prepared. If you have your ducks in a row and are generally on top of the request list from the closer at the bank, you can close even faster than the 45-60 norm.
Now that we’ve broken these main SBA myths, why is NOW the absolute best time to borrow money?
SBA Incentives Include
90% Guarantee Rate
Waiver of Guarantee Fees
Want to learn more about SBA Financing? Check out our podcast:
ABOUT THE AUTHOR
Joshua Kim, Principal at 7a Accelerator, ‘hacked’ the SBA credit matrix at a young age, figuring out how to navigate the confusing world of SBA financing and leveraging it to purchase three businesses before turning 21. He recently exited from those businesses and now has a financial education & consulting business where we help business owners by educating them about SBA financing as well as assisting them with where/how to structure and secure the ideal financing for their businesses and projects.