MacRo LTD Blog

SBA Loans: Myth versus Fact

Business owners often overlook this misunderstood program when seeking capital financing.

I recently attended a particularly smooth and painless settlement for an office condominium, and was surprised to learn that it was financed via a Small Business Administration (SBA) loan from Capital One Bank. Pleasantly surprised, for a number of reasons:

  • The closing took place just 10 weeks after the contract was signed.
  • The closing fees involved were lower than I would have expected, as was the interest rate.
  • The business purchasing the property was well established, with a solid track record of earnings.

That particular transaction was closely followed by a lease deal on a MacRo listing that was partially financed by a substantial million-dollar SBA loan.  The tenant had obtained the SBA financing to manage overhead costs of her exponentially expanding green energy business, which was moving out of its very successful start-up phase to become a mid-sized business.

Intrigued, I followed up with Collin Norris, a Frederick-area business banker from Capital One Bank. Norris quickly cleared up my misconceptions regarding SBA loans.  He confirmed that I’m not unusual, as SBA-backed loans are not widely understood by the small business community.

Norris would like to see a better understanding in the business community of the key advantages that differentiate SBA financing from conventional commercial loans:

Cash flow too tight for a 20% down payment? No problem. 

SBA down payment requirements are lower than conventional loans. SBA underwriting guidelines allow a 10% down payment, versus a standard of 80% down payments for conventional commercial loans. This can free up critical cash flow for businesses in start-up or expansion modes.

No tangible business collateral? No problem. 

Collateral requirements for SBA loans are more forgiving than conventional financing.  This is very important for businesses seeking SBA lending for business acquisition.  For example, medical practices don’t typically come with real estate collateral or product inventories to guarantee loans, so relaxed collateral requirements make SBA financing very attractive for medical start-ups.

No business earnings track record? No problem. 

Businesses are able to apply and qualify for SBA loans based on solid business plans with projected financial performance—key for start-ups and expanding businesses.

Norris shared that approval rates for these loans have gone up in recent years, as the SBA has loosened its underwriting requirements. “The intent of SBA financing is to provide the necessary capital to small and even medium-sized businesses through flexible financing options,” said Norris.  “SBA programs provide an alternative to banks and borrowers when certain aspects of the deal are outside the box of conventional bank financing.”

According to Norris, following are the most common misconceptions that cause businesses NOT to pursue SBA loans:

SBA loans are designed for start-ups or struggling businesses.

Not true at all, says Norris. In fact, the SBA has excellent options for business with up to $10 million in annual sales, and their financing products are ideal for doctors, dentists, CPAs and attorneys.

SBA loan fees are too high.

In most cases, the SBA will charge a guarantee fee which is based on a percentage of the guaranteed portion of the loan. While these fees tend to be higher than typical fees on conventional financing, the benefits of using an SBA program usually outweighs the cost of doing so.  Also, the SBA elected to waive all guarantee fees on 7A loans of $150,000 and less in fiscal year 2014.  It was recently announced that this fee waiver will continue in fiscal year 2015.

Processing of SBA loans drags on for months, and is too tedious.

Time to close for SBA loans is actually within the same general timeframe as conventional financing.  SBA processing is more time consuming for banks, but no more so than the appraisal timeframe for conventional loans.  The underwriting of SBA loans takes anywhere from 3 days to 3 weeks, which is that same as a conventional commercial loan.

At the close of our conversation, Norris shared some good news:  commercial lenders are once again courting commercial real estate investors aggressively, after a long dry spell. Banks are particularly interested in financial investments in multi-family, multi-tenant office, mixed-use, and industrial properties.

Looking to explore SBA loans as a source of financing for your next commercial real estate investment?

Become a MacRo Insider

The contributor:  Collin Norris is Vice President and a business banker at Capital One Bank.   For more information about conventional or SBA commercial loans, he can be reached by calling (240) 581-3980 or emailing

The author:  Kathy Krach is a commercial sales and leasing agent with MacRo.


Leave a Reply

Your email address will not be published. Required fields are marked *