The 5 Difficulties of Obtaining an SBA Loan

If you are in search of funds to grow or start a small business, then you’ve likely come across SBA loans. What are SBA loans? Traditional banks partner with the Small Business Administration (SBA) to provide financing to businesses in the United States – guaranteed up to 85% by the SBA. What are their perks? The SBA-backed loans including the SBA 7(a), SBA 504, Disaster loan, and Microloan programs are attractive to small business owners due to their favorable interest rates, long repayment periods, and loan sizes. Access to these loans allows small businesses to obtain funding for a variety of purposes from buying real estate to purchasing inventory.

Unfortunately, obtaining an SBA loan is easier said than done. Successful applicants must meet stringent requirements highlighted under the SBA’s loan program eligibility page. Small businesses are hindered by a truckload of barriers that frustrate their funding objectives. So, what are the common difficulties that a small business is likely to encounter?

5 Challenges of Obtaining SBA Loans

  1. Application Challenges

As discussed earlier, the SBA loan has stringent requirements. You should be ready for red tape and endless paperwork including your loan application history, business and personal tax income returns (3 years), a statement of personal history, and a personal financial statement among other documents.

Paperwork aside, are you a new business? Is your credit score not long enough or too low? Do you have red flags in your credit history such as a bankruptcy? Or do you have a criminal record? If you answered “yes” to any of these questions, you would soon find out that applying and getting approved for an SBA loan is a tedious process. SBA lenders tend to dump all these application requirements and huddles on their clients, creating a time-consuming and unnecessarily complicated process.

  1. Lengthy Waiting Time

Are you looking for urgent or time-sensitive funding to seize opportunities or tackle challenges? If so, an SBA loan is not the best course of action. In addition to the complex application process, banks and other SBA loan lenders are characteristically slow to process the loans. Don’t be surprised if the loan has not been credited to your account 6 months later after your application. Additionally, clients often about being kept in the dark throughout the waiting period.

  1. Inconsistencies among Banks

Although the SBA sets its eligibility criteria, each financial partner (banks and SBA lenders) can set their own terms and conditions regarding their SBA loan policy. You might find yourself migrating from one bank to another before finding a reasonable SBA lender. It’s actually quite common for your application to be rejected in one bank, but approved in another.

  1. Rejection Rates

If your SBA loan has ever been declined, you’re actually not alone – you’re one among many. According to the latest statistics by the SBA (March 2019), the approval rate of small business loan application at big banks stood at 27.3%. Although this figure is a record high for the loan, it falls way below the approval percentage of other funding alternatives. To make matters worse, the reasons for the denial are often vague – even with a written letter of explanation.

  1. Personal Risk – Collateral

Let’s assume that you’ve been one of the lucky few to secure an SBA loan with one of the financial institutions in America. While this might be a promising development to the financial stability of your small business, you will inherit personal risk. What does this mean? If for any reason your business cannot meet the loan repayment obligations, the SBA lender can claim their proceeds from your personal finances – personal assets offered as collateral.

What is the Way Forward – Alternatives?

Entrepreneurs, startups and growing businesses face a variety of difficult decisions that affect their going concern. One such make-or-break decision is the source of funding to start, operate, and grow a small business. Before taking a line of credit or taking a loan, invest your time in researching all viable options and weighing their applicability – make an informed decision.

If you need to get your hands on immediate funding, SBA loans should not be your only option. Sure, the sought-after loan has its fair share of advantages. But the endless paperwork, red tape, application and approval time are major drawbacks that hinder its viability for short-term financing. So, what should an entrepreneur obtain time-sensitive funding for his/her small business? Are there alternatives to an SBA loan? Fortunately, all these questions can be answered with the help of a business consultant – you don’t have to be on your own.

If you want to significantly reduce the hustle, application time, or even improve your chances of SBA loan approval, you can hire a consulting firm to hold your hand and streamline the process. Are you still reluctant on an SBA loan due to a specific reason such as eligibility or funding urgency? There are easier and faster financing options on the table – reach out to your consulting firm and find out. Access all the financing help you need to start and grow your small business!


– Daniel Desta – CEO of Ameritech & Associates

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