Loans from the Small Business Administration (SBA) are an essential element of business ownership in the USA. SBA loans tend to be borrower friendly, have simple terms and low interest rates. These loans sometimes get a bad rap when lenders who are not experts at SBA lending do a poor job. An inexperienced lender can cause the process to be lengthy and frustrating which often leads to misinformation about these loans.
As an expert SBA lender, we want to dispel the myths surrounding SBA financing and encourage educational services business owners to consider SBA financing as a viable option for business loans.
- SBA loans are slow. FALSE.When considering an SBA loan, seek out a lender who is part of SBA’s Preferred Lender Program (PLP), like Live Oak Bank. PLP status allows the bank to approve the loan without waiting for the SBA’s approval — the bank acts on behalf of the SBA. Many banks offering SBA products use outside third parties to compile the application and loan information. This process often leads to frustration and delays. At Live Oak, we “have the pen” and make decisions quickly. Typically, loans move from application to closing in 45 days. With our online platform, loans under $350k can “Click to Close” in 20 days!
- SBA is a drag on taxpayer dollars. FALSE.The SBA is a government agency that generates its lending capacity and conducts operations without any taxpayer burden. The SBA is a self-funding agency requiring no congressional appropriations. The SBA enjoys real bi-partisan support.
- SBA loans require ridiculous paperwork. FALSE. All loans, regardless of type, require paperwork. At Live Oak Bank, we have streamlined and automated the loan process. With Live Oak Portal, customers can securely upload all loan documentation, fill out online forms and electronically sign all documents. While Portal enables a streamlined, efficient process for borrowers, the credit decisions remain with the lending team.
- SBA loans have no risk to the originating bank. FALSE. The SBA guaranty is 75%, leaving the bank an actual credit risk of 25%. Live Oak Bank has a very low default rate because we understand the educational services industry, credit risk, and the SBA requirements. This track record enables our PLP status and technology efficiencies.
- SBA interest rate, terms, and conditions are attractive. TRUE.SBA interest rates are competitive, and both variable and fixed rates are available. Prepayment penalties are based on loan term. SBA loans do not have “covenants,” so there is no danger of your loan being called due to missing revenue or EBITDA requirements. The SBA does require repayment of the loan, consistent with all lenders.
- SBA loans have fees. TRUE.Yes, the SBA requires a “guaranty fee” of approximately 2.75%. This fee covers the SBA securing a significant portion of the loan. However, at Live Oak Bank, we charge NO origination or additional fees. The SBA receives 100% of the fee. Other inexperienced SBA lenders may charge fees above the SBA guaranty fee and may not be aware of discounts that may be available. If you are a veteran, the SBA guaranty fee is discounted 50% – a great feature for those who have served our country.
- I can get the same SBA deal at my local bank. PROBABLY NOT. Local banks value your relationship, but may or may not have SBA experts in-house. Our customer experience, post-closing surveys, and key performance indicators (KPIs) consistently exceed almost all other banks and lenders. We strive to give you the best deal possible in every way – lowest appropriate interest rate, no origination fees, speed, and responsive and knowledgeable people.
We value every customer at Live Oak Bank. Contact us today to discuss the specifics of your business loan needs.
Lew Woodbury is the General Manager of the Educational Services lending division at Live Oak Bank. Reach him at 901.907.9450 or at Lew.Woodbury@liveoak.bank.