The U.S. Small Business Administration (SBA) doesn’t lend money directly to small businesses. Instead, it sets guidelines for loans made by its partnering lenders. This allows business owners to reach out to a large network of lenders to determine which one best suits their needs.
There are many reasons why small business owners have long been turning to the SBA for loans. Some of the many benefits include:
- Competitive and capped interest rates
- Varying loan amounts, up to $5.5 million
- More lenient eligibility requirements than more traditional loans
And that’s just the start.
Before you apply for an SBA loan, it’s important that you also become familiar with any potential drawbacks. Here are a few that you should plan for:
- Down payment required: If you’re taking an SBA loan, you may need to make a down payment. This takes risk off the back of the lender, thus making it possible for you to secure the money you need.
- You may need to offer collateral: This doesn’t always hold true, but it could be something that’s required. If so, take into consideration what type of collateral the bank is looking for and then consider your options. Remember, if you default on the loan, the lender has a legal right to take the collateral.
- Slow approval process: While it can take longer to secure an SBA loan, you can get around this by planning in advance of when you need the money.
- Poor credit, low credit score harm your chances: If you have a poor credit history and/or low credit score, it’ll harm your ability to receive an approval. It’s often best to improve your score before applying for an SBA loan.
What do you think about these potential disadvantages of an SBA loan?
The good thing is that you may be able to work around many of these. Furthermore, some may not pertain to you, such as bad credit.
Don’t Let These Drawbacks Scare You
No matter what type of loan you’re seeking, you’ll always find that there are pros and cons of moving forward. Only you can decide if it makes sense to do so.
Once you wrap your head around the idea, you’ll feel better about making a final decision.
If you have lingering concerns, don’t hesitate to contact the U.S. Small Business Administration or a local partner bank direct. This will give you someone to talk to about the pros and cons, application process, and what to expect.