What misconceptions do most people have about the SBA 504 loan?



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There are a lot of misconceptions and myths out there about SBA financing in general, but also about the SBA 504 loan.

The process takes too long.

That is a very old misconception. It deals a lot with the lender you chose to do the financing with. Really, it’s all about the lender. If the lender doesn’t specialize in SBA financing or SBA 504, then the business owner will be a guinea pig.

This is specialized knowledge. This isn’t something a conventional banker rolls out of bed in the morning and says, “Hey, I’m gonna make an SBA loan today.” There’s a whole bunch of rules, regulations and procedures that go along with this. So if you’re a business owner, you want to ask that question upfront. Ask, “I’m thinking about a SBA 504 loan. How many of those have you made in the last year?”

If the answer is single digits, you probably want to look around for a different lender. At Fountainhead Commercial Capital, we can get you approved within two hours. The process then only takes a few weeks, as opposed to a few months.

You’ll have to put your home in jeopardy.

There are other misconceptions relating to how much collateral is going to be taken by the loan. That often relates to a different SBA product entirely, the 7(a) loan, that requires full collateralization. Those stories about people having to pledge their homes probably relates to a 7(a) loan and not to a SBA 504 loan. In a SBA 504 loan, we only pledge the assets that we’re financing. That’s it.

The interest rates for the SBA 504 loan are higher.

Some people think that SBA financing has higher interest rates. It can be in the case of the SBA 7(a) loan, but not necessarily with the 504. Oftentimes interest rates are much lower. They’re usually market rates on the first lien piece and they’re way below market pricing on the second lien piece–the piece that is actually guaranteed by the SBA. When you blend the two, you’re generally at or slightly below market pricing for these loans.

There’s been a tremendous amount of change at the SBA over the last 20 years I’ve been in the industry. It’s not the same government agency it was 20-25 years ago when it was more difficult and more of a headache to get an SBA 504 loan. Today, there’s plenty of specialists out there.

There’s plenty of people that have made the processes very easy. But there’s a lot of people out there that can make it a much better process for you, including Fountainhead, and that’s what we strive to do every time.