As the economic effects of the recession begin to fade, there has been a recent resurgence in interest for Small Business Administration (SBA) loans.
Along with this growth, however, there have also been increased occurrences of lenders making boastful claims that may sound a bit too good to be true. Indeed, oftentimes they are too good to be true, but unfortunately you may not find out the real truth until after you’ve signed on the dotted line, and by then it’s usually too late.
To help clear up any confusion and arm you with the facts you need before you make a commitment, here are the truthful responses to five top SBA loan myths that are making the rounds today.
There’s an SBA loan available that does not require any collateral.
Fact: This is false, and the myth was probably based on the fact that there actually is a loan available to every lender that doesn’t require personal collateral.
However, the fact that’s being conveniently omitted is that business collateral is still required, and the amount could be significant.
Although there are a small number of banks that may only require a minimum of 10 percent collateral, most still prefer 20-30 percent. The SBA website clearly states that for all SBA loans, personal guaranties are required from every owner of 20 percent or more of the business, as well as from other individuals who hold key management positions.
Whether a guaranty will be secured by personal assets or not is based on the value of the assets already pledged and the value of the assets personally owned compared to the amount borrowed. In any case, either personal or business collateral will definitely be required, so be very skeptical of anyone who tells you otherwise.
There is a “no doc” or “low doc” SBA loan program available.
Fact: The “no doc” program was discontinued many years ago, and the government has assured us it will not be returning. Don’t believe it when someone tells you that there is an SBA loan program in which no documentation is required—it simply isn’t true.
However, there is indeed a program (the SBA Small Business Loans program, previously called the SLA program) that may be considered a “low doc” loan since the amount of documentation the lender needs to provide to the SBA has been reduced. However, this is not a “special” loan and it’s readily available.
Be advised that the Small Business Loans program is currently the only way a loan under $350,000 can legally be submitted to the SBA, so be wary of any lender who may claim to have access to another way, since they may be exposing you to significant legal risk.
Only certain lenders can provide true working capital lines of credit for businesses such as SBA Express Loans.
Fact: This is false. Every SBA lender in the United States is able to provide these lines of credit. Benetrends would be happy to assist candidates in finding and working with a reputable SBA lender.
The SBA Express Loan program was created to provide businesses with revolving lines of credit when they may not yet be able to qualify for a standard commercial line. This program is used primarily for startups and newer businesses that do not yet have a strong profit and loss (P&L) statement.
Only one or two companies are confident enough to offer an SBA Loan Guarantee.
Fact: This is false. There are several funding companies that offer an SBA loan approval guarantee. However, there may be slight differences in the language each of them uses, so it is critical that you read and fully understand the fine print.
Benetrends offers a money-back guarantee that states if we accept an application for processing, we guarantee that the application will be approved or we will refund 100 percent of our fee.
There are not many pre-qualification tools available to let me know what I may qualify for.
Fact: This is false. Benetrends and other funding partners have been offering a funding pre-qualification tool for several years. Sometimes called the SBSS or Small Business Scoring Service, most of the reports generated from these tools will simply determine whether or not you are ‘fundable’.
However, unlike other funding partners, the report offered by Benetrends uniquely informs you how much you may both qualify for and can afford. Benetrends provides this report to you free of charge.
Unfortunately, myths like the ones we’ve discussed above have a negative impact on success by encouraging bad decisions from aspiring entrepreneurs and small business owners. We hope this article has helped put to rest some common false claims that you may be hearing today.
As always, feel free to contact Benetrends at (866) 423-6387 with any questions you may have regarding franchise funding or small business financing.
Eric Schechterman is Director of Sales and Marketing for Benetrends, Inc. and is a top sales executive with a proven track record of driving multimilliondollar growth and market expansion. He has been a featured speaker at numerous business and franchise conferences, where he has helped to educate
entrepreneurs on successful small business funding strategies. Benetrends is located near Philadelphia, PA and is recognized as the authority in franchise and small business financing.
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