LOANOLOGY
LENDING MYTHS
SBA LOANS:
BUSTING THE BIGGEST MYTHS AND MOSTLY MYTHS
Equity Buy-ins Not Eligible
This is a myth as of October 2023. new rules allow for the partial equity buy-ins.
SBA Lenders Are All The Same:
Perhaps the most pervasive myth is that all SBA lenders are essentially the same since they offer SBA loans. In reality, while the underlying SBA rules are uniform, the lending institutions themselves vary widely. Each SBA lender has their unique additional qualifying criteria, policies, and requirements that they layer atop the SBA's standard rules. Furthermore, the SBA often defers to the lender’s standard policies on many requirements, which can differ significantly from lender to lender.
Takes a Lot Longer:
The notion that SBA loans inherently take longer is being debunked by platforms like FranchiseLoan.io. By connecting applicants to top lenders well-versed in SBA lending for specific industries and brands, the loan process can be expedited compared to an individual attempting to navigate it alone.
Lender Will Put a Lien on My House:
This is a widely misunderstood aspect of SBA loans. The SBA itself does not require borrowers to have equity in a property to qualify for a loan. However, an SBA lender may use such equity for collateral under certain conditions. For loans over $500k, the SBA requires home equity to be used as collateral only if the borrower has a 25% or greater equity stake in any personal property. This requirement can be avoided by taking out a Home Equity Line of Credit (HELOC), which can reduce the available equity to under 25%.
A Lot More Documentation:
While it’s true that an SBA loan may require a couple more documents than a traditional conventional loan, the total number of documents required by the SBA has actually decreased, narrowing the gap between the two.
More Ongoing Covenants :
Contrary to this belief, there are fewer ongoing covenants after an SBA loan closes than with most conventional loans. The primary post-closing requirements are the provision of an annual tax return and an updated personal financial statement.
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