Many thousands of businesses have avoided seeking assistance from the Small Business Administration due to a number of misconceptions about the government agency. Lending professionals have often spent considerable time trying to convince eligible borrowers that participation in an SBA program is worth the effort, and that there would be no terrible repercussions if the SBA guaranteed their loan. This article will attempt to dispel some of the more common and misleading myths surrounding the agency.

MYTH #1: The SBA programs are primarily for women and minorities. Quite untrue. SBA guaranty programs are available for participation by all people, regardless of race, color, creed, age, sex or ethnicity. To discriminate in any way would be a violation of federal laws. The agency does employ an initiative to try to encourage women and minority borrowers to utilize the program. Under the initiative these borrower categories are permitted to be preapproved for loan guarantees before the lender has formally approved their loan requests. The SBA does not, however, provide any special funding allocations for these categories, nor do women or minority participants receive any special consideration or scoring that would provide agency assistance in a situation in which other participants would not.

MYTH #2: Anyone can get an SBA-guaranteed loan. Somewhat the opposite of Myth #1, but just as false. There are, of course, limits. Participation in the SBA program is restricted to borrowers who qualify under certain conditions relating to the size of their small business in terms of revenues, net income, net worth, and number of employees, with regard to the industry involved. Businesses involved in real estate development, lending, gambling, or illegal activities are completely ineligible to receive assistance under the loan guaranty program. Also, potential borrowers must have a credit and character profile which is acceptable to the lender.

MYTH #3: The government will closely monitor the business. No, the government will not. Many small businesses have hesitated or balked at participation due to fears of government monitoring. Participation in the SBA program brings with it no monitoring of the borrower’s business activities or government audits. The agency does not have the mandate, interest, or personnel to provide supervision of any business entity unless the borrower is in default of the loan. If a default situation arises, the SBA’s interest will be strictly focused on working with the lender to recover the loan. Additionally, SBA assistance does not increase the borrower’s chances of being audited by the IRS, the Occupational Safety and Health Administration (OSHA), or any other government agency that regulates business and industry operations.

MYTH #4: With an SBA guaranteed loan, the lender doesn’t care how good or bad the business is. Nothing could be further from the truth. Lenders participating with the SBA programs are responsible for making good loans. The purpose of the SBA guaranty is to enhance the loan, not subsidize the lender in order to build a bad loan portfolio. Collecting on bad loans can be a very expensive and time-consuming process for both the lender and the Small Business Administration.


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