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What They Don’t Tell You About an SBA Loan

I work with many entrepreneurs who buy existing businesses using Small Business Administration (SBA) financing. While it is a great resource, the process is different than 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. 6. It is worth it. Nationally, the SBA approved more than 68,000 loans of more than $30 billion during fiscal year 2017. In the North Carolina district, the SBA loan programs placed a record amount of funding into the hands of North Carolina small businesses during the fiscal year that ended September 30, 2017, guarantying 1,460 loans for over $849 million. These businesses generate jobs and tax revenues in our communities.

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