3 Totally False Myths about Small Business Administration (SBA) Loans

3 Totally False Myths about Small Business Administration (SBA) Loans

The Small Business Administration exists to promote American small businesses and help them succeed. But chances are good that you’ve never considered applying for an SBA loan or maybe never even knew you could be eligible.

That should change.

Doing business with the government may not be everyone’s first choice, but that’s probably because many don’t really understand what the SBA is, who it’s for and what it can do. Let’s take a look at three of the biggest myths about SBA lending and why they are dead wrong.


MYTH: SBA loans are just for start-ups or restaurants.

FALSE: SBA loans can be made to almost any type of business at any stage in its development in amounts of up to $5 million. Banks like Pinnacle make the loans, and the SBA provides a Guaranty as a safety net. This lets banks extend credit to more businesses – and possibly on more favorable terms – than they could under conventional lending.

So why would an established, successful business apply for a government guaranteed loan? SBA comes with a host of advantages:

  • They require less capital.
    SBA loans require less cash equity and collateral, which is good for businesses with less capital.
  • They can offer longer terms and lower payments.
    Terms on SBA loans can go up to 10 years for a business-only loan and up to 25 years for business real estate. This makes for a smaller loan payment and give businesses more working capital on hand.
  • They can be used in multiple ways.
    Unlike traditional loans, a single SBA loan can be used for several purposes at the same time, like business acquisitions, partner buy-outs, debt refinancing, working capital, equipment and business real estate.


MYTH: SBA loans must be fully secured by collateral.

FALSE: The SBA 7(a) program allows for loan approval based on business cash flow without requiring the loan to be fully secured by fixed assets. If business owners don’t have enough capital for the down payment or equity injection required in a conventional loan, SBA 7(a) is often a good option.

One benefit of this structure is that these loans can be used for “goodwill” transactions where what’s being purchased is business value, not a tangible asset. Business owners frequently use SBA 7(a) loans to buy an existing business or buy out a business partner. These types of loans are rarely fully backed by collateral.


MYTH: The SBA is a complicated government program, and getting a loan is a long, difficult process.

FALSE: OK, this one can be true. Depending on which bank you work with, applying for an SBA loan can take longer than the conventional loan process.

But that is definitely not the case for the SBA’s Preferred Lender banks, like Pinnacle. With Preferred Lender status, Pinnacle runs the SBA application process independently. For the vast majority of loans, all processes and approvals are handled in-house without seeking approval from the government.

It’s also important to choose a bank staffed with SBA financing experts. You’ll benefit from working a lender who specializes in this type of financing. 

That makes the entire process faster and easier.

Furthermore, with SBA 7(a) “Small Loan” and SBA Express programs, which are loans smaller than $350,000, processing and approval can come even faster. That’s why picking the right partner is essential.


As you consider your long-term growth plans, it may make sense to look at SBA as a source of financing. With lower cash equity injections, collateral requirements and monthly payments, these loans can help your business get to the next level. If you meet the simple eligibility requirements, an SBA loan can do your business a great deal of good.


Jim Gugliemino is an SBA advisor based at Pinnacle’s Broad Street office in Chattanooga. He can be reached at Jim.Gugliemino@pnfp.com or by calling (423) 386-2665.

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