LOANOLOGY

LENDING MYTHS

Misconceptions about SBA loans can discourage small business owners and franchisees from pursuing the financing they need to start, grow, or acquire a business. These myths often stem from outdated information or misunderstandings about the SBA lending process. With the updated SBA SOP 50 10 8 (effective June 1, 2025), it’s time to set the record straight. Below, we debunk the most common SBA loan myths and show how LoanBox’s innovative platform helps you navigate the process with confidence.

SBA LOANS:
BUSTING THE BIGGEST MYTHS AND MOSTLY MYTHS

Myth #1: Equity Buy-Ins Are Not Eligible

Reality: This myth was debunked with new SBA rules introduced in October 2023, which now permit partial equity buy-ins for SBA loans.

  • What It Means: Previously, SBA loans were often restricted to full business acquisitions or startups, but the updated rules allow financing for purchasing a partner’s equity stake (e.g., buying out a co-owner’s share). This applies to 7(a) loans, enabling partial ownership changes without requiring a full buyout.

  • SBA Requirements: Per SOP 50 10 8, borrowers must meet standard eligibility criteria, including a debt service coverage ratio (DSCR) of 1.15+, SBSS score of 155+ for loans under $500,000, or FICO score of 650–680 for larger loans. Owners with 20%+ ownership must provide unlimited personal guaranties.

Myth #3: SBA Loans Take Too Long

Reality: SBA loans can be processed efficiently with the right platform, debunking the notion that they’re inherently slow.

  • What It Means: Traditional SBA loan processing can take 2–4 weeks for 7(a) loans or 1–2 months for 504 loans, but modern platforms like LoanBox accelerate the process. By connecting you with experienced SBA lenders and organizing your application, approvals can occur in as little as 2–5 days for Express loans or 2–4 weeks for standard 7(a) loans.

  • SBA Efficiency: SOP 50 10 8 streamlines documentation for pre-approved lenders (Preferred Lender Program), and LoanBox leverages these efficiencies to reduce wait times.

Myth #4: Lenders Will Always Put a Lien on My House

Reality: The SBA doesn’t mandate home equity as collateral, and strategic planning can often avoid personal property liens.

  • What It Means: For SBA loans over $350,000, lenders may require personal real estate as collateral if business assets are insufficient, but only if you have 25% or more equity in the property (per SOP 50 10 8). You can reduce this equity below 25% by taking out a Home Equity Line of Credit (HELOC), effectively bypassing the lien requirement. For smaller loans (e.g., Express loans $50,000 or less), collateral is often not required.

  • SBA Flexibility: Lenders prioritize business assets first, and personal real estate is a last resort, unlike some conventional loans with stricter collateral demands.

Myth #2: All SBA Lenders Are the Same

Reality: While SBA loans follow uniform guidelines, lenders vary significantly in their policies, criteria, and processes, creating a diverse lending landscape.

  • What It Means: The SBA sets baseline rules (e.g., 51%+ U.S. citizen or lawful permanent resident ownership, collateral for loans over $350,000), but lenders add their own requirements, such as higher DSCR thresholds (1.25–1.50), specific industry preferences, or unique collateral policies. Some lenders are more flexible with startups, while others prioritize acquisitions.

  • SBA Deference: Per SOP 50 10 8, the SBA often defers to lenders’ internal standards for creditworthiness, collateral, and risk assessment, leading to varied approval outcomes.

LoanBox Loanology provides independent insights into small business lending based on what we know can be accomplished with most LoanBox lenders. However, there may be some policy, perspective, or viewpoint we share which may not reflect those of all lenders on our platform, as each brings unique policies. LoanBox lenders brings diverse policies and perspectives so not all lenders will be able to assist or even agree with all of the tips, strategies, articles, guides, and insights we provide for small business owner borrowers. Lenders are not responsible, liable or obligated for the content or advice provided in Loanology or on LoanBox.com. For specific guidance, use the search bar or just contact us directly and speak to a LoanBox Advisor.