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SBA Loans: Myths and Realities
By understanding what the Small Business Adminstration does
and doesn't do, business owners can be in a better position to
take advantage of this often misunderstood government program.
Entrepreneurs often shun SBA-backed loans because of a range
of misconceptions. Here are 6 Common Myths about SBA loans:
- The SBA oversees a pool of free money. Business owners
often go to the SBA looking for free money, which is not what
the Administration is about. People are expected to pay loans
back. The agency also expects people to put up some collateral,
although a lack of collateral in and of itself is not grounds
to turn down a loan. The SBA guarantees loans based on factors
common to any credible lending institution: a well-thought-out
business plan, management experience, good character, and an
owner's willingness to take a stake in the business, among others.
- SBA interest rates are too high. The SBA puts ceilings
on interest rates. For instance, the maximum rate is prime plus
2.25% for a loan of less than seven years and greater than $50,000.
If the term is seven years or greater and for more than $50,000,
the maximum is 2.75% over prime. Interest rate tiers are based
on the loan's size, and rates are negotiable up to the ceilings.
- You have to be a business in distress to qualify. A
business doesn't have to be failing to get its loan approved.
Usually, an SBA-guaranteed loan helps a business owner bridge
a gap: a lack of collateral, for example, or the need for an
extended loan term.
- The SBA is only for start-ups. While SBA lenders do
make loans to start-ups for the purchase of business assets
including the purchase of existing businesses, it's also a great
resource for established businesses looking to secure working
capital. Some of the biggest borrowers in the SBA's real estate
loan program are established dentists and doctors who want to
buy offices. The loans are good for fast-growing businesses
who need working capital, too.
Source: Inc. Magazine
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