What Are the Drawbacks of SBA Loans?
1. Difficult to get
The SBA loan application process requires substantial paperwork (from personal finance reports to cash flow projections). Furthermore, the SBA takes a long time to process an application; even once the paperwork is examined, you may be rejected. Still, if you’re interested in applying, consult the SBA’s Loan Submission Checklist to see if obtaining an SBA loan is a good investment of your time.
2. Unusually High-Interest Rates
Although the SBA has a cap on loan interest rates, it can be costly compared to alternative financing options. As of December 2017, this restriction (for 7-year+ loans worth more than $50,000) was set at 25% yearly. However, compared to the interest rates available from a regular lender, the SBA’s rates are relatively high.
3. Personal Danger
To obtain an SBA loan, business owners (those with 20% or more ownership) must assume some personal risk. As a result, if your company cannot make loan payments, you may lose the personal assets you gave as security. As a result, you should only apply for an SBA loan if you believe you can repay it properly.
After all, you don’t want to jeopardize your personal or corporate finances. Finally, before applying for an SBA loan, do your homework. It would be absurd to assert that SBA loans are always beneficial or detrimental to small enterprises.
Instead, it’s crucial to recognize that every organization is unique, so before applying, consider the pros and cons and how they can affect your firm. An SBA loan may be a viable choice if your company requires a simple cash flow solution but cannot secure financing from typical lenders.
