Last week, we got an email telling us that a new article about SBA loans had been published online. We’ve set up several Google Alerts so we can be notified when there’s news that pertains to our business and industry. (If you don’t use Google Alerts for your business, we recommend fixing that right away!) This email in particular told us about an article called “The Truth About SBA Loans” that appeared on the FOX Business Small Business Center. we clicked through and read the article with great interest, hoping to find some support for SBA loans and something we could share with others. Alas, we were disappointed. The author, Meredith Wood, doesn’t tell any untruths here, but she doesn’t tell the whole story either…and misrepresents the SBA 504 loan program in particular.
[If you like, you can read the article here for context. Just be sure to come back to get our take after you do.]
The Facts About SBA Loans
Wood begins by revealing an apparently deep, dark secret: that the SBA doesn’t actually make loans, but only guarantees them. This, however, is hardly groundbreaking news. In fact, it should come as a relief to anyone who didn’t already know it. We don’t think anyone really wants the government making long-term loans to small business owners.
SBA 504 Loans: For Fixed Assets Only
Wood moves on to give very brief descriptions of three types of SBA loans, including the 504 program. Here, she makes it clear that SBA 504 loans cannot be used for working capital or inventory (emphasis hers). This actually gets at what this article is really about: small loan alternatives for small business owners, such as factoring or cash advances. It’s true that SBA 504 loans cannot be used for working capital or inventory, but it’s also true that SBA 504 loans are the best choice for small business owners who want to buy/build/expand their commercial facilities or buy equipment (which is what the loan program is specifically designed to do). Wood simply points out what the 504 program doesn’t do and moves on rather than explaining what it does do (and does very well).
Sizeable Small Business Loans
The other half-truth here is that the maximum amount of a 504 loan is $5 million. What Wood doesn’t say is that this loan program finances total project costs, and the SBA/CDC portion of the loan is typically up to 40% of the total project cost. In other words, 40% of the project can be up to $5 million (or $5.5 million for manufacturing), meaning it’s possible to finance $12+ million projects. Our average per-loan project cost for 2014 is about $4.0 million, and our largest loan year-to-date is $12.1 million for a 428,000 square foot industrial facility in Bensalem, PA. Lots of people still think SBA loans are for small projects and small businesses that can’t get financing anywhere else. However, most of our clients are very bankable and choose an SBA 504 loan because it’s their best option.
Lingering Myths About SBA Loans
In a section about drawbacks to applying for SBA loans, Wood talks about lots of paperwork and a lengthy approval process. We have to say that she’s flat-out wrong on this one. First of all, there’s no more paperwork for an SBA 504 loan than any other commercial bank loan. Second, an SBA 504 loan shouldn’t take any longer than an ordinary bank loan. If it does, then the borrower should take issue with the lenders they chose to be involved in their project. The SBA has worked tirelessly to streamline the application process and specialist SBA lenders (ahem, like us) have developed the expertise to navigate the loan process with minimal delays (again, no more than with an ordinary bank loan, which are often complicated as well). Perhaps Ms. Wood should visit the section of our website devoted to dispelling lingering myths about the SBA so that she doesn’t continue to share these as fact.
We do agree with Ms. Wood that SBA loans aren’t for every small business and every situation. But we would urge anyone weighing their loan options to talk to an SBA loan specialist and not make any decisions based on one article that only tells part of the story.
Clearing the Air on SBA 504 Loans
So, what questions do you have about SBA 504 loans, the benefits of owning commercial property, or commercial real estate in general? What are your preconceived notions about SBA loans? Leave a comment below, or email us at email@example.com, or call us at 1-866-622-4504 to share your thoughts. We have more than a decade’s worth of experience with SBA 504 loans, and we’d love the chance to fully explain what we’re about and how beneficial our program can be.
– Your 504 Experts