Busted: 6 Myths about the SBA 7(a) Loan

The SBA 7(a) loan program exists to help small businesses. Simple as that. Despite being the SBA’s most popular loan program, there are common myths and misconceptions around the 7(a) that have resulted in overarching confusion about the program. We’ve separated fact from fiction so you can make the most informed financial decision for your business.

MYTH #1: BORROWERS CAN GET 7(A) FUNDING DIRECTLY FROM THE SBA, NO LENDER NEEDED

Fact: The SBA sets the guidelines for the 7(a) program and guarantees a percentage of the loan if a borrower defaults, but funding is directly through SBA-approved banks, as well as 14 authorized non-bank lenders. All participating lenders go through a rigorous application and compliance process in order to earn approval from the SBA to offer this type of loan.

MYTH #2: THE ONLY WAY TO GET A 7(A) LOAN IS TO WORK WITH A TRADITIONAL BANK–ON THEIR TERMS

Fact: An additional option is to apply through one of the 14 non-bank lenders across the country that have been approved to originate SBA 7(a) loans. These lenders are often able to offer more flexible credit requirements, as well as a digitally-focused application process, which can save you time. Especially in today’s environment, this can be an attractive option for business owners.

MYTH #3: YOU CAN ONLY GET ONE SBA 7(A) LOAN AT A TIME

Fact: Small business owners are eligible for up to $5 million in SBA 7(a) loans. This means that you can take out multiple SBA loans as long as the sum of those loans is less than the program maximum. SBA 7(a) loans can also be taken out in addition to Paycheck Protection Program loans, for those small business owners who were able to secure PPP funding.

MYTH #4: ONLY UNDERPERFORMING BUSINESSES OR OWNERS WITH BAD CREDIT CAN GET AN SBA 7(A) LOAN

Fact: While SBA 7(a) loans are an option for small business owners who have been denied funding elsewhere, most lenders look for a strong credit score and history, as well as sufficient cash flow to meet monthly obligations.

MYTH #5: THE SBA 7(A) APPLICATION PROCESS IS THE SAME NO MATTER WHERE YOU GO

Fact: The turnaround time for getting SBA 7(a) funds largely depends on the borrower providing all of the required application documents in a timely manner. The process can also be more efficient when borrowers work with a lender that has the designation of SBA Preferred Lender Program (PLP). This program provides lenders with the delegated authority to approve SBA 7(a) loan requests without secondary approval from the SBA.

MYTH #6: BORROWERS HAVE TO FULLY SECURE THEIR 7(A) LOANS

Fact: Unlike many conventional business loans, SBA 7(a) loans don’t need to be entirely secured by applicants. These loans are not collateral-dependent, and while SBA requires all available collateral to be pledged, being able to fully secure 100% of the loan is not a prerequisite for approval.

The SBA 7(a) loan is designed to be a versatile and robust financial solution for small business owners. It has also been enhanced by the CARES Act, making now a good time for business owners who need financial assistance to apply for one. The SBA will pay six months of principal, interest, and any associated fees for all current SBA 7(a) loans and any new ones disbursed prior to September 27, 2020, while funds last.

Whether you’re looking for immediate funding and relief to get you through this uncertain time, consolidate debt, or invest in your business in other ways, the SBA 7(a) loan is a great option to consider