Jon Daly, Director of SBA Lending at State Bank, discusses issues small business owners should consider before applying for a small business loan.

“Any bank can make a small business loan, but not all banks make Small Business Administration loans,” said Daly. “A bank must be authorized by the SBA. While some are, few banks have the expertise and desire. State Bank has both.”

Daly said State Bank will make almost $75 million in SBA loans this year and ranks first among community banks in Georgia.

There are benefits to SBA loans including extended terms, no balloon payments, higher advance rates, and lower equity injections. SBA loans may also be an option for businesses that have “lumpy” financial trends or brand new companies.

Daly explains that there are many misconceptions regarding SBA loans including that the amount of time and paperwork is greater than a conventional loan.

“This is simply not true if a lender is knowledgeable about the programs and has processes that are designed to minimize the hassle factor,” said Daly. “The perception is a legacy of the old SBA, as well as an old-school banker’s approach to lending. Preferred Lenders like State Bank have a dedicated SBA staff and a borrower-friendly process.”

Other misconceptions include that SBA loans are more costly than conventional loans and are supported by the taxpayers.

“While some do have a higher initial price tag, SBA loans are fully amortizing—borrowers do not need to renew or refinance their loans, ever. They only pay costs to obtain a loan one time, and most of the time we finance all costs into the loan,” said Daly. “As well, lower equity injection requirements mean that borrowers can leave more funds in the business, which often guarantees higher returns than the small saving on one-time closing costs.”

According to Jon Daly, there are several issues to consider before securing a business loan.

First, lending institutions will assess if the borrower is financially able to repay the loan. Then the bank will review the borrower’s historical and projected financial performance.

“We will generally ask for three years of information, tax returns, interim financials, and personal financial statements,” said Daly. “Borrowers often will be required to inject capital into a project, whether from business or personal resources, and should be prepared to pledge collateral. If the business assets are not sufficient to secure the loan, the business owner may be asked to pledge additional collateral. The bank always wants to make sure there is shared risk.”

Daly explains that there is a difference between conventional loans and loans guaranteed by the SBA.

He explains that the SBA does not lend money directly. The guarantee is an agreement between the bank and the SBA. The borrower must also be eligible for SBA financing, and it is the responsibility of the bank to make that determination in accordance with SBA rules.

“We have to determine whether or not we can meet the borrower’s need with a conventional, non-SBA loan or if we need to have the SBA guarantee in order to approve the loan,” Daly said. “Some borrowers will specifically request an SBA loan, in which case we will still analyze the request to ensure that we are unable to meet the borrower’s need via a conventional loan.

“At State Bank, our bankers are fluent in SBA loans and can converse intelligently with borrowers about their options.”

For more information on small business loans, visit the State Bank website or contact Jon Daly at [email protected].