Community Business Finance prides itself on borrower and lender education. In the past, we have exposed many myths surrounding SBA loans in general and the 504 Loan Program specifically. For quick reference we have gathered three common myths together to uncover the truth about a lending program that Community Business Finance feels strongly supports small businesses and allows them to achieve their dreams.
"All truths are easy to understand once they are discovered; the point is to discover them." - Galileo Galilei.
The Small Business Administration's mission is to help entrepreneurs improve their small businesses, take advantage of contracting opportunities, and gain access to small business loans. The SBA Guaranteed Loan Program was created to support and strengthen the small businesses that employ our nation. Several misconceptions surround this program.
Myth 1: The SBA Lends Taxpayer Money
It is a common misconception that SBA lends money to businesses. The SBA does not directly lend money. A traditional lender, such as a bank, loans the money. The SBA then guarantees a portion of the loan, between 30%-90% depending on the loan type. This is similar to being a loan co-signer. This helps lenders be more comfortable with a loan that they might otherwise not approve, such as a loan for a start up, or a borrower that has less collateral than a bank requires.
Myth 2: SBA 504 Loans Have Too Many Fees
Let's examine the facts about 504 loan fees. Every loan has fees involved, but how those fees are handled makes a real difference for the borrower. In a 504 loan, the first lien portion is a commercial loan and the bank might charge an origination fee. This is a common fee for commercial loans and is usually .5 to 2 percent of the loan amount.
The SBA, however, is firm that borrowers should not be charged application fees or bank management fees. The SBA fees are roughly 3 percent of the guaranteed portion of the loan, or the second lien. To preserve working capital for the borrower, most of the fees in Community Business Finance's 504 Loan Program are added to the loan amount and amortized over the term of the loan. This also includes the underwriting fee and closing costs. Keeping out-of-pocket expenses to 10% of the total project cost allows businesses to allocate their cash reserves for other uses.
Myth 3: SBA 504 Loans Have Too Much Paperwork
When you think of government agencies, such as the SBA, you probably imagine mountains of paperwork. In fact, many lenders actively avoid promoting 504 loans from fear of endless forms. You should know that the SBA has taken great strides in reducing the number of forms needed to apply for a loan.
SBA Administrator Karen Mills has stated, "The paperwork is actually not very much, and we have taken it down." In fact, the SBA typically doesn't require any more forms or information than do commercial lenders. Copies of this information can then be electronically shared between the CDC and the third party lender, moving the application process along even more quickly.
Community Business Finance specializes in all SBA lending programs and has extensive knowledge of all of the lending options that are available to borrowers. As a dynamic resource for the business community, we have an interest in helping your business succeed. Our mission is to help companies in Texas and Louisiana expand with long-term, low down payment, fixed-rate financing.
For more information on how you can qualify for an SBA loan contact our offices:
In Texas call Bill Ebersole at 713-457-1650, ext. 201, or email him at email@example.com.
In Louisiana, call Jeanne Bergeron at 1-800-462-1017 or email her at firstname.lastname@example.org.