Alabama business owners often inquire about the benefits of a Small Business Administration loan. In many cases, folks have heard about SBA loans, but they might not fully understand them and how they can be used.
So whether considering an SBA loan for a business or learning about it for the first time, here are five common misperceptions, with the actual facts related to each one.
The SBA lends money directly to business owners.
Actually, the SBA works with qualified lenders that lend small businesses the money. The SBA guarantees a portion of the loan, allowing the lender to assume more risk and make loans that they might not conventionally approve.
SBA loans are only for purchasing inventory.
While SBA loans are often used to buy inventory needed to start or grow businesses, there are many other ways to use SBA-backed funds. SBA loans also could be used to buy owner-occupied real estate, upgrade facilities, purchase machinery or finance payroll. They could be used for expanding a business, which could include acquiring a complementary business, buying out a business partner or launching a new location.
SBA loans are only for startups.
Approximately 25 to 30 percent of SBA loans are used to start new ventures, but that means more than 65 percent of SBA loans are used to expand existing businesses. In fact, many business owners take advantage of SBA loans to purchase real estate or to support strategies designed to grow their businesses.
SBA loan interest rates are higher than other loans.
This isn’t necessarily the case. Remember, lenders are making the loan, so they’re setting the interest rate, which reflects the risk that the loan presents for the lender. Rates can be negotiated between the borrower and lender, but they are subject to SBA-regulated base rates.
SBA loans take a long time.
Many business owners assume that obtaining an SBA loan will take several months, but loans often could be closed quicker than that. Over the past few years, the SBA has worked to shrink the processing time involved in receiving a loan, while lenders have invested in technology and modified application forms that make the process more efficient.
Valley Bank’s SBA team is just one of many that could educate small business customers on this type of loan and help debunk SBA myths.
~ Kate Meriwether is vice president, SBA business development officer for Valley Bank. For more information on SBA loans, contact her at 205-730-3936 or visit valley.com. Valley Bank is a Member of the FDIC and Equal Opportunity Lender.