Is Your SBA Loan Really “Using Someone Else’s Money”?

Post Date: January 27, 2022
handing money over sba

 

Written by Eric Schechterman, Chief Development Officer at Benetrends

As we explored in a previous blog, “Launching a Business Post-COVID”, there is an increase in the number of people looking to become business owners, and funding the business is key to a successful launch. In today’s environment, one of the most sought after funding sources is an SBA loan. But do borrowers fully understand what is involved with an SBA loan?

Candidates often mention their preference for an SBA loan because they believe they are “using someone else’s money” to fund their business. Actually, this isn’t true. If someone gifted money for a business, with no strings attached – that’s using someone else’s money.

With an SBA loan, you are being given funds to use for a business – and usually with more favorable terms than if you were to borrow directly from the bank or tap into a line of credit. But it is a loan, and with a loan there is a repayment schedule and interest, much like with a home or automobile purchase.

As an example, an SBA loan for $150,000 will cost the borrower more than $200,000 over the term of the loan in principal and interest (using a current estimated interest rate). Plus, if the business goes under – even if you declare bankruptcy, an SBA loan must still be repaid. It’s a government loan, and the government will get their money.

So how is that using someone else’s money?

Not only that, but the terms of the loan are dependent on other factors like liquid assets, collateral, and a good credit score.

Another Option

On the other hand, there is a funding option that doesn’t require loan repayments, a great credit score, adequate liquid reserves or collateral. And it’s not dependent on someone else’s money. Known as a ROBS (Rollover as Business Startups) strategy, this option allows you to fund your business with your own retirement funds – without upfront taxes or early withdrawal penalties.

Although the goal is to run a successful venture, there is always the possibility of the business going under, regardless of what funding is used. Because a ROBS isn’t a loan, but rather an investment, the loss is written off as a bad business investment.

Benetrends pioneered the ROBS funding strategy and has been funding America’s small businesses for nearly 40 years. In addition to ROBS and SBA loans, Benetrends also offers a wide range of other funding solutions that covers nearly every type of business situation and allows us to structure the most attractive option for your business.

To learn more, schedule a free funding consultation or download our eguide on Innovative Funding Strategies for Entrepreneurs.

 

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