While the Small Business Administration has helped millions of small businesses over the years, it remains a fact that SBA financing is not for everyone. The truth of the matter is that there are so many hurdles to jump through for SBA loans that sometimes businesses are better off getting business financing through the private sector. This is especially true when a business needs financing right away for an opportunity that may pass by quickly.
Longer Approval Process
The process behind getting SBA financing is a lengthy one. Not only do you have to go through the process with your lender, but there is a process you must go through with the Small Business Administration. It often means that the entire process takes twice as long to get approved, unlike the private sector. When a business is looking at an opportunity that’s time-limited, an SBA loan may not be the best option. By the time the loan is approved, the opportunity could be gone.
SBA loans come with stricter guidelines than business financing in the private sector. This is for a good reason. The Small Business Administration is funded by tax dollars, and they must be accountable for any money paid out on behalf of any business. While SBA financing is backed by the administration and not given out by the administration, the organization is still guaranteeing your loan. If something were to happen that you could not repay your loan, the SBA would then be responsible for repaying the loan. Therefore, to protect the American public, they must make sure that you can repay the loan.
These stricter guidelines often mean that your business and personal finances are evaluated much more than if you were to get business financing through the private sector. Several years of tax returns for your business and/or your personal finances must be provided. Also, you must be able to produce documentation as to the success or potential success of the business in question. While some of this is also required in the private sector, you can be certain that SBA financing will require a much more in-depth look at these documents.
The Bottom Line
All in all, SBA financing has its advantages and disadvantages. When you are having trouble getting loans through a lender for a new business, it can become remarkably easier when you have SBA guarantee the loan. However, it is not for every business or every situation. It is not a way to get financing for risky ventures. It is also not the way to get financing if you have bad credit. However, it is the way to get business financing if you need an advantage with the lenders in a tough credit market.
Consider all of your options carefully and fully understand the process you will have to go through, as well as the length of time it may take to fulfill your goals. If an SBA loan makes sense, go for it. If not, try going through a lender on your own first. If you already have excellent credit and a good track record for success, you may be better off in the private sector. You may also find more favorable financing terms. Either way, do the research and find the best lender for your business needs.
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