Financing finesse Featured

10:31am EDT March 28, 2003
The Small Business Administration helps small businesses get the advice and funding they need to succeed. And SBA programs help businesses increase profitability, thereby retaining and creating jobs.

However, there are many misconceptions about SBA loans that deter people from applying. Here are some myths and truths.

* Myth: It takes too long to get approved.

Truth: Some SBA loans can be approved in as little as 48 hours. The more prepared you are, the faster the turnaround time. Your loan officer advises you what information is needed to make the approval process work smoothly. The key is to get your banker involved early in the process.

* Myth: The fees are too high.

Truth: Although there are fees associated with SBA loans, they're reasonable. In fact, they can often be financed with the loan, allowing you to use your cash to benefit your business.

The purpose of the loan is to help grow your business by improving cash flow or acquiring assets. Also, you are only paying SBA fees on the guaranteed part of the loan.

* Myth: I don't have enough collateral for a loan.

Truth: Generally banks rely on cash flow to determine repayment ability. Collateral is an important part of a loan, and your lender will work with you to properly structure the transaction.

* Myth: SBA loans require too much paperwork.

Truth: The amount of paperwork required is often equivalent to that of a traditional loan. It is the job of your SBA lender to complete and process the required documents. Much of the documentation ensures that you're eligible for a guaranty and that your business's products and services are available to anyone.

* Myth: The SBA serves as a direct lender.

Truth: The SBA doesn't become a lending source when the traditional lending institution falls through. Instead, the lending institution is approving your application and asks the SBA to guarantee a portion of the loan. Financing your business is a partnership between you, the bank and the SBA.

* Myth: I need a large down payment to secure the loan.

Truth: SBA loans can be secured with as little as 10 percent down depending on the type of loan and its use. A bank may require a down payment of 20 percent or more, depending on the use of the funds.

Consider your options. For example, say you decide to purchase a building. It costs $1 million, and you have the $200,000 your bank requires as a down payment. You can invest that cash into the purchase, or contribute $100,000 in cash and keep the remaining $100,000 in your business as working capital rather than using another source of financing.

* Myth: If I can't qualify for an SBA loan, there are no other options.

Truth: Federal, state and local governments offer many alternative financing options. Your loan officer should be educated on alternative programs that provide solutions for your business.

The bank and the SBA can partner with you to develop an excellent business plan and strategy for your business's future. Count on your officer to be creative and thorough in researching options to grow your business. Steve Bilko is an SBA loan officer at Fifth Third Bank. Reach him at (614) 341-2684 or at