First-time buyers often come into the SBA financing process with misconceptions about how it works. Here are five of the most common ones we encounter.
Misconception 1: "The bank decides if I qualify"
The SBA establishes the lending guidelines, but individual lenders determine how they apply them. That means two lenders can review the same acquisition and come to completely different decisions.
Lenders also have their own internal credit policies, which can be stricter than SBA requirements. Those policies vary from lender to lender, as does their experience with different business models. A lender that has financed 200 Amazon FBA acquisitions will approach a deal differently than one evaluating that type of business for the first time.
A loan denial doesn't necessarily mean your deal isn't SBA eligible. It may simply mean that particular lender isn't the right fit. Getting a second opinion is worth it.
Misconception 2: "I need 20% down"
SBA 7(a) acquisition loans require a minimum 10% equity injection. For a $2 million acquisition, that's $200,000 rather than $400,000.
A portion of that 10% can be covered by a seller note on full standby, meaning no payments are made during the SBA loan term. Depending on the deal structure, a buyer may only need to contribute 5–7% in cash, with the remaining amount covered by a seller note.
Buyers who assume they need 20% down may be passing on acquisitions they could realistically finance.
Misconception 3: "SBA loans take forever"
A well-prepared loan package submitted to an experienced SBA lender can close in 45–75 days. Delays often come down to how prepared the buyer is when the process begins.
The SBA's Preferred Lender Program (PLP) allows approved lenders to make final credit decisions internally without sending each application to the SBA for review. This can cut weeks off the process.
Working with an experienced PLP lender can make a significant difference in how quickly a deal closes.
Misconception 4: "I can't use SBA financing to buy an online business"
SBA 7(a) loans have been used to finance acquisitions of Amazon FBA businesses, Shopify brands, SaaS companies, content sites, and app businesses. A business doesn't need a physical storefront or a tangible product to qualify.
The key requirements include at least two years of operating history, sufficient cash flow to cover debt payments, and a qualified buyer.
There is considerable flexibility in the types of online businesses that can qualify for SBA financing.
Misconception 5: "The interest rate is the most important factor"
SBA 7(a) loans typically have variable interest rates tied to the prime rate, with limits on lender spreads set by the SBA.
On a $2 million loan, a 0.25% difference in interest rate amounts to approximately $5,000 per year. That matters, but it shouldn't be the only factor in choosing a lender.
Other factors to consider include:
- The lender's experience financing your type of acquisition
- Their underwriting timeline
- Their ability to structure deals when complications arise
- Their Preferred Lender Program (PLP) status and experience working with the SBA
Choosing the right lender is similar to choosing an attorney. Experience, expertise, and a proven track record should carry more weight than simply getting the lowest quote.