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.
The Process
The process behind getting SBA financing is a lengthy one. Not only do you have to go through the process at your lender, but there is a process you must go through in the Small Business Administration, too. This often means that the entire thing takes up to twice as long to get approved as if you get business financing through the private sector. When a business is looking at an opportunity that is fleeting, getting SBA loans may not be the best option. By the time the loan is approved, the opportunity could be long gone.
Stricter Guidelines
SBA loans come with stricter guidelines than business financing in the private sector. This is for good reason. The Small Business Administration is funded by tax dollars, and as such they must be accountable for any money paid out on the behalf of any business. While SBA financing is simply 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 they fully believe that you will be able to repay the loan.
These stricter guidelines often mean that your business and personal finances will be delved into much more deeply than if you were to get business financing through the private sector. Several years’ worth of tax returns for your business and/or your personal finances must be supplied. In addition, 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 up-sides. When you are having trouble getting loans through a lender for a new business, it can become remarkably easier when you get SBA loans that are guaranteed. 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 simply need a leg up 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.
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