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SBA Myths

Lots of small businesses and their advisors steer clear of the SBA 504 loan because of commonly-held misconceptions about the SBA itself. Since this type of financing is our specialty, we work closely with the SBA on behalf of our small business Clients, and we can dispel these myths about the U.S. Small Business Administration.


The U.S. Small Business Administration’s (SBA) loan programs have garnered much criticism over the years. Some complaints may have been warranted in the past, but these days, the SBA is different.

Below are some of the most common myths and misconceptions regarding SBA loans, along with our explanation of the truth. If, after reading this list, you still have some questions about the SBA 504 loan or SBA loans in general, don’t hesitate to contact us.


SBA loans take too long.

Fact: The SBA is aware of small business owners’ time and of how busy they are. Certified Development Companies (CDC’s), which are the SBA’s representatives on these loans, now work quickly and efficiently. They often can examine borrowers’ underwriting documents in only 48 hours. If an SBA loan’s approval process takes more time than this, it may be that a particular lender is holding it up.

SBA loans have too much paperwork.

Fact: There have been great efforts to streamline the overall application process. In most cases, the required documentation for SBA loan approval nearly matches that of an 80 percent loan-to-value conventional commercial loan. Some borrowers have even found this to be less paperwork than what they faced when they refinanced their home loan. Specialized commercial lenders (like yours truly) have helped this along, too.

SBA loans are only for the worst borrowers or for startups.

Fact: Some SBA programs are designed for startups or for businesses still in their infancy. Overwhelmingly, however, 504 loans are not meant for new businesses that should be more concerned with using their capital to establish their place in the competitive landscape. Many 504 loan borrowers are companies that have tens of millions of dollars in sales.The equity savings gained from SBA 504 loans are meant to provide economic development. Unhealthy companies simply cannot do this. Plain and simple, this loan program is a means of leveling the playing field for healthy small businesses contemplating commercial property ownership.

SBA loans have too many fees.

Fact: This myth has been unjustly applied to all programs under the agency’s umbrella. In truth, origination fees for SBA 504 loans average about 25 to 50 basis points higher than ordinary commercial bank loans. However, even these fees can usually be negotiated for borrowers with better debt-service-coverage ratios and personal credit. Even so, these slightly higher fees seem reasonable and negligible to most business owners who understand that getting the highest cash-on-cash return available to them is paramount. This type of financing is tailor-made for small business owners who want to decide where and when to best use their hard-earned capital yet still enjoy the advantages of commercial property ownership.

SBA loan rates are higher than conventional lending.

Fact: SBA 504 loans nearly always have fixed rates. The effective, blended interest rates are competitive with conventional bank financing. In addition, the government-guaranteed second mortgage on a 504 loan is the least-expensive money available for typical small business owners who want to own their commercial real estate.

All SBA lenders are the same.

Fact: Any lender can do a 504 loan, but it takes experience and expertise to do it right every time. Choose a lender that has the proven track record of successful 504 loan closings and happy customers.

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