The Small Business Administration: A Friend or Foe of the Borrowers?

Ask yourself this question: Is the Small Business Administration a friend or foe of the borrowers?

Today let me share with you both the positive and negative viewpoints to this not so popular but important question. If you're small business owners, then this post is for you.

The SBA (Small Business Administration) partners with traditional banks to provide financing to small business owners nationwide. Access to these loans helps small business owners like you achieve the financial stability needed for long-term success.

Still, like all financing options, SBA loans aren’t without risk, and they aren’t the right fit for everyone. Before applying for an SBA loan, it’s important to consider the various pros and cons associated with them, which I’ll briefly detail in this post.

An SBA loan entails lending fees, and the amount of the loan can be a significant burden on your business. Although the federal funding provided by SBA may have a high return on investment, lending fees are typically quite high as well.

Many small businesses struggle or fail because they simply don’t have enough capital to launch or expand their operations. This is especially so during the Covid-19 pandemic where the little guys got hit hard.

The fact you have or don’t have access to the same sorts of funds that the big guys do seems to stop many small business owners from ever making renting or purchasing commercial office space as possible.

This is where an SBA loan can benefit you, making you able to afford those things necessary to run your business. Yet, one of the things we hear from many owners is there’s never enough capital to make commercial property investments.

To make matters challenging, the loan term lengths can be quite long, but the Small Business Administration guarantees the business loans made by the business, yet the offer may run out in the next 30 to 60 days.

This means typically you will be taking on a second mortgage on your present space in order to support the business; something many owners simply aren’t quite comfortable doing within the time frame of 30 or 60 days.

But don’t fret. The SBA will make every effort to make it a pain-free process by making a few delays in the process as well.

And they can’t and won’t make that second mortgage, meaning you will have a second source of capital to cover your working capital needs while the working capital loan can be processed through the physical banking system.

The other drawback to the SBA loan is the SBA requires timely monthly collateral. That is, the bank or business investment group will pledge their specific property and other assets of the business if deemed necessary.

After the advertisement period ends and the agreed terms of the loan have passed, the business owner must pay interest. While the interest percentage is quite high, it’s really another cost to your business’ cash flow.

Most people in debt are able to recognize they have no leverage to stand a chance of acquiring a loan from an SBA program.

If you’re doing it, make sure it was an arrangement you can handle. Otherwise, plan ahead to deplete your resources prior to seeking funding through the Small Business Administration.

The SBA terms of service (TOS) for its loan programs can change any time at its own discretion, so I suggest that you check their website for any and all of their loan-related updates for the small business owners and please be guided accordingly of those TOS.

What do you think of the SBA after reading this? Is the Small Business Administration a friend or a foe to the borrowers? I’ll let you answer that yourself by commenting below.

Thanks for reading. I hope this helps. If you liked this, consider sharing it with your family and friends for information purposes only. If you had not already, you can also follow me here on News Break. Until next time. Be safe.

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