SBA Loan Myths

SBA 504 Loan Myths

Many small businesses and their advisors steer clear of the SBA 504 loan because of commonly-held misconceptions about the SBA itself. Some complaints may have been warranted in the past, but these days, the SBA is different. 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.

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.

Myth: The SBA lending process takes too long and is inefficient.

Fact: The SBA lending process might seem like it takes forever when a borrower works with a lender that doesn’t specialize in the 504 loan program. Someone that closes a few SBA loans a year (if that) will not know the ins and outs of the program. We’ve been in business for 15 years, we know how to properly structure an SBA loan, we’ve worked with many Certified Development Companies (the SBA’s representatives for the loans) so we know from experience what needs to be done to get your loan approved and closed in a timely manner.

Myth: SBA loans have too much paperwork.

Fact: Again, this might be an issue of working with a lender that doesn’t know what will be required for an SBA 504 loan. In most cases, the required documentation for SBA loan approval closely matches that of an 80 percent loan-to-value conventional commercial loan. Working with an expert that specializes in the 504 loan helps streamline the process on the other 20 percent required. 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 to improve this process.

Myth: SBA loans are only loan for borrowers who don’t meet the criteria that banks or other institutional lenders have.

Fact: Those that say that seem to ignore the fact that he SBA 504 loan is comprised of two different loans. The first mortgage, typically financing 50% of the total project cost, provided by a third party lender (or Mercantile in specific situations) is a conventional loan, meaning that those borrowers need to be approved by those lenders. Not to mention that in our case those borrowers are qualified by our own underwriting team.

Myth: SBA loan rates are higher than conventional lending.

Fact: The SBA 504 loans consists of two loans. The first mortgage, typically financing 50% of the total project cost, provided by a third party lender (or Mercantile in specific situations) is a conventional loan at market rates. The government-guaranteed second mortgage (40% of the total project cost) is at below-market rates.  This means the SBA 504 loan rates are often the least-expensive money available for entrepreneurial small business owners who want to own their commercial real estate.

Myth: All SBA lenders are the same.

Fact: Any lender can provide 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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