What They Don’t Tell You About an SBA Loan

I work with many entrepreneurs who buy existing businesses using Small Business Administration (SBA) guaranteed financing. While it is a great resource, the process is different from that of a conventional loan.

Here are some observations on the process:

1. It takes longer than a conventional bank loan. The SBA, after all, is a federal program, and there are federal bureaucracy and federal statutes involved.

2. It is an expensive way to finance. On top of the lender’s origination and due diligence fees, you will pay an SBA guarantee fee. You will pay for the lender’s attorney to review the business purchase agreement and all of the deal documents, as well as draft the loan documents.

3. You will get frustrated sending the same documents over and over, as the loan proceeds through the lender’s underwriting process.

4. There is very little flexibility because of the federal bureaucracy and statutes. The Golden Rule definitely applies – "He who has the gold makes the rules!" 5. You generally provide more collateral than you would for a conventional loan. You will pledge the assets of the business you are buying, you will sign a personal guaranty, and often you will give a second mortgage on your home and any other real estate you own. If you own other businesses, they may also be asked to guarantee the loan.

6. It is worth it. Nationally, in FY 2022, the SBA approved nearly $35 billion or more than 57,000 7(a) and 504 loans to small businesses. 7(a) loans, 504 loans, microloans, and surety bonds helped to support more than 621,000 American jobs. The SBA invested more than $7.9 billion in 1,200 small businesses through the Small Business Investment Company program, which supported almost 130,000 jobs.

So far in 2023, the North Carolina District Office has approved 670 loans worth a total of $440,393,900, with an average loan size of $657,304.