The Small Business Administration (SBA) provides some terrific incentives for smaller companies to get financed through banks that might not be there to qualify otherwise. And for those who could qualify for bank financing, it can be a vehicle to allow them to get either a lower interest rate or to get stretched out for a longer period of time or perhaps have a loan tied to a term, rather than tied to a line of credit.

However, there is a misconception that often comes with SBA loans. That misconception is that the loan is coming from the SBA. That’s not the case at all.

The loan still comes through a traditional bank that offers and SBA program. The loan may be guaranteed by the SBA up to 85%, which allows the bank to reduce its risk significantly in the transaction and take on credits that they might not otherwise. The SBA also takes on some of the due diligence process and they may look at it slightly different than a bank would. For example, the SBA will rely upon the tax returns. The SBA will have more of a historically look, while a bank might look a little bit more towards the future. So, the SBA does plan an important role in the transaction, but know that the loan is still coming from a bank, not the SBA.

Jon Paul, MBA, CPA, CMC, CM&AA

President, Value Added Finance Resources
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