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Shah: Avoiding an SBA loan? It’s time to reconsider
Navin Shah
Navin Shah

At some point, nearly every small business owner needs to borrow money – whether it is to renovate, to expand or to have working capital.  However, when considering the available funding options, many business people quickly dismiss Small Business Administration (SBA) loans due to certain myths and misconceptions.    

The truth is that SBA loans can be one of the most affordable and worry-free sources of money for most business situations.  Let’s look at why SBA loans are worth a second look, not second thoughts. 


Myth:  SBA loans are expensive.


·         There is no application fee or bank management fee for SBA loans.

·         Yes, there are “guarantee fees,” which are typically 2% to 3.5% of that portion of the loan that is guaranteed by the federal government.  However, these fees -- along with closing costs -- can be added to the loan amount and financed over the term of the loan.  With conventional loans, fees and closing costs cannot be financed.

·         The required deposit, either in cash or in collateral, is lower for SBA loans than for conventional loans -- often as little as 10%.

·         Terms of SBA loans are longer, for example, as long as 7 years for working capital; 10 years for equipment; and 25 years for real estate.  Compare this to conventional loan terms of 60 months or less -- and when those conventional loans need to be renewed, there will be new application fees, new approval process, and new loan pricing. 


Myth:  SBA loans require complicated paperwork and a long approval period.


·         In recent years, the SBA has considerably reduced the amount of required paperwork -- and typically, your bank will help prepare your loan application -- so the process is simple and easy.     

·         The process is also quick, with approval times usually measured in days and weeks, rather than months.  This means funds can be available to you promptly so you can take advantage of time-sensitive business opportunities.


Myth:  SBA loans are a “last resort” for financing.


·         The SBA program helps credit-worthy borrowers who have difficulty getting financing at reasonable terms -- often by allowing the bank to consider a loan differently.  For example, because a large portion of a loan is guaranteed by the government, the bank can apply deposit collateral toward the remaining portion of the loan and thereby approve the loan.

Myth:  SBA loans are only for the smallest of businesses.


·         The maximum amount of an SBA loan has been increased to $5 million -- and SBA’s definition of “small business” means that 98% of all companies in the United States can qualify for an SBA loan.


Myth:  The government is the lender for SBA loans.


·         The government does not provide direct loans to businesses.  Rather, the SBA  provides a government guarantee on the loans that are made by those banking institutions who are SBA’s lending partners.


Myth:  All SBA lenders are the same.


·         Each SBA lender has its own policies, procedures, and philosophy for evaluating such factors as cash flow, collateral loan-to-value percentages, and management experience -- so it’s important to understand the credit criteria of the lender you are considering.   

·         The SBA has rated its lending partners, with the highest category being an “SBA Preferred Lender.”  These lenders have loan officers who specialize in SBA loans and they make so many SBA loans that they receive the fastest service from the SBA. 

·         Community banks are typically your best source for SBA loans because of local decision-making; familiarity with the needs of small business owners; and very focused personal attention, including one-on-one advisory sessions.

Longer terms.  Lower deposits and monthly payments.  Fast approvals.  Less paperwork.  These are just some of the reasons that make an SBA loan cost-effective, valuable, and worth your consideration.   

Navin Shah is Chairman of Royal Hotel Investments, which owns and operates two hotels in Covington and one in Conyers.  He is also Vice Chairman of Embassy National Bank, a community bank in Lawrenceville that he helped establish in 2007 and has become one of the leading SBA “Preferred Lenders” in the southeast.  He can be reached by e-mail at