SBA Loans: Useful Yet Underutilized

How small businesses can get the funding they need to succeed

Small businesses make up 99% of all businesses in the United States and sadly, half of them don’t last five years.

Most small businesses fail because they lack capital to start up, operate, or grow. Many entrepreneurs, believing they’re “unbankable,” borrow money from relatives, max out their credit cards, or simply cross their fingers and hope for the best.

If you’re in this boat, your struggles are all too real—but might be unnecessary. The capital you need to succeed might well be available through Small Business Administration (SBA) loans, a helpful resource that’s been around for more than 50 years, but is still little known and underutilized.

SBA loans offer vital resources for small businesses, but are underutilized.

What is the SBA, and how can it help?

The SBA is an independent agency of the federal government, formed to incubate and grow businesses and jobs. To that end, the SBA helps small businesses with the spectrum of small business challenges, from creating a business plan to obtaining capital to expanding into new markets to disaster assistance. And actually, some “small businesses” aren’t small at all: SBA classifies any business with fewer than 500 employees as a small business.

The SBA’s embrace is wide, but its value-adding benefits are under-publicized and under-utilized. According to Pamela Innis, a senior SBA specialist at Republic Bank, which is the #1 SBA lender by dollar volume in the NY-NJ-PA tri-state area, “Most people associate SBA only with lending,” she says. “But the SBA offers a multitude of free, valuable resources for small businesses, including consulting and mentoring. We enjoy helping customers take full advantage of those resources.”

The SBA is also committed to expanding access to funding. The SBA has a number of outreach initiatives aimed at underserved groups and communities, including women, veterans, and LGBT business owners.

What kinds of businesses are eligible for SBA financing?

SBA loans are available for multiple business purposes, including real estate acquisitions and construction, business acquisitions, equipment purchases, and working capital lines of credit.

And most business types can qualify, including so-called “cash businesses.” For example, Innis, who has more than 35 years’ experience in the SBA arena, has closed SBA deals for restaurants and hotels; medical and veterinary practices; building trades (plumbers, electricians, HVAC contractors); car washes; funeral homes; retail, convenience and liquor stores; manufacturing plants; information technology companies; and partner buyouts. Her lending footprint covers New Jersey, Pennsylvania, New York, Connecticut, Delaware, and Maryland.

“Overall,” says Innis, “There are more deals we can do than we can’t.”

Through SBA loans, lenders can invest in people, not just businesses.

How do SBA Loans work?

The SBA itself doesn’t make direct loans. Instead, SBA encourages and enables participating lenders, such as banks or credit unions, to make loans to small businesses by guaranteeing a percentage of each loan.

The SBA can guarantee up to 85% of a loan under $150,000, and 75% of a loan over $150,000. Although there is no minimum loan amount, the maximum amount is $5,000,000 and the maximum SBA guaranty for any single business is $3,750,000.

What SBA Loan programs are available?

The SBA offers three loan programs. The maturity and interest rate for each loan depends on the program.

The most popular program is the Basic 7(a) Loan. According to Innis, Basic 7(a) Loans generally have 7 – 10 year terms and offer fixed and variable interest rates of about 10%, though the SBA imposes a maximum rate the lender can charge.

The other two SBA programs are 504 Loans and Microloans. 504 Loans are used to finance long-term assets, refinance existing debt, or make capital improvements to reduce energy consumption. 504 Loans have 10 – 20 year terms, with interest rates between 5 – 6%. Microloans must be less than $50,000 and have a maximum term of 6 years; interest rates range from 8 – 13%.

What are the financial benefits of SBA funding?

If you’re a small business entrepreneur, SBA loans offer three significant economic benefits.

  • Lower monthly payments. SBA loans have longer terms than typical business loans.
  • Budgeting comfort. Because SBA imposes a maximum interest rate, you’ll know your worst-case debt service load going in, and can plan for it.
  • No balloon payment. Typical business loans require a lump-sum, “balloon” payoff after three or five years. SBA loans are fully amortizing, or self-liquidating. This means the loan is automatically paid off at the end of the term.

According to Innis, SBA loans are a “win-win.” “With SBA backing, we can lend to more customers and make longer-term commitments to their businesses,” she says. “For our customers, their chances to succeed are dramatically increased. We can win a customer for life, and our customer can win a business for life.”

For all of its attractions, SBA loans are not a substitute for poor credit. Just like any other bank loan, SBA loans are underwritten and evaluated according to a borrower’s ability to repay, based on financial statements and tax returns, suitable equity and collateral, a solid business plan, and the borrower’s resume.

However, the SBA considers other factors beyond conventional lending formulas, and will even approve loans to start-up business without proven cash flow. “SBA will approve ‘character loans’,” Innis says. This means that SBA will back loans based on projected repayment revenues from a reasonable business plan, and a borrower’s expertise, commitment, and good character. “This is huge,” Innis says. “It helps our bank invest in people, not just businesses.”

Aren’t SBA Loans hard to get?

Many believe that getting approved for an SBA loan is a paper-intensive, and time-consuming ordeal. Innis says this is a common misconception. “Sure, there a few extra hoops to jump through compared to a conventional loan,” she says. “But the benefits far outweigh the added time and effort.”

The amount of extra SBA paperwork depends on the loan amount. Loans under $350,000 usually require less paperwork. “Regardless of loan amount, we help customers gather their informal information and work with them to fill out SBA forms,” Innis says. “We try hard to make the process as painless as possible.”

Depending on the loan amount, it can take 30–90 days from application to closing. But the process can sometimes be expedited. For example, Innis has closed SBA deals in less than 30 days.

You might be bankable after all.

What’s the bottom line?

  • SBA welcomes entrepreneurs of all stripes, and supports loans for most types of business and business purposes, offering dramatically broader access to funding for small business.
  • SBA loans offer longer payout terms, lower payments, budget predictably, and freedom from the dreaded balloon payment.
  • SBA guaranties enable lenders to make loans they couldn’t otherwise make—and give people a chance to succeed they wouldn’t otherwise have.

In fact, you might be bankable after all.


Credit: HFS&L intern Melissa Malik researched and was lead writer of this article.



The Business Case for Communicating in Plain English

Does your business lawyer communicate in plain English? If not, it’s costing you money.

In our post Top 5 Things Your Business Lawyer Should Do For You, we wrote that your business lawyer should add value. One way to add value is to de-mystify and simplify things for you. This is the bedrock of effective communication between lawyer and client. 

In fact, effective communication is essential to the success of any enterprise. Ineffective communication leads to confusion and mistakes. Confusion and mistakes equal waste. Waste costs money. [1]

If your lawyer isn’t breaking it down, communicating in simple language, then your lawyer isn’t communicating effectively. It’s costing you, and we can prove it.  

The Built-In Value of Plain Language

Consider this golden snippet from the American Heritage Book of English Usage (Houghton and Mifflin 1996):

Most of us are busy and impatient people. We hate to wait. Using too many words is like asking people to stand in line until you get around to the point. It is irritating, which hardly helps when you are trying to show that you know what you're talking about. What is worse, using too many words often makes it difficult to understand what is being said. It forces a reader to work hard to figure out what is going on, and in many cases the reader may simply decide it is not worth the effort. Another side effect of verbosity is the tendency to sound overblown, pompous, and evasive. What better way to turn off a reader?

This is also good business advice. Time is money. You’re writing to inform or persuade. Customers and prospects crave clarity and certainty. Clear writing is the emblem of clear thinking. It shows that you’ve put the customer’s needs first. 

These days, the inherent value of clarity is amplified. Given the surge of smart phones and social media, more and more people write to each other (even though people hate to write!) than actually talk to each other. A content explosion is underway in a global marketplace that contains millions of people communicating instantaneously—many of them using English as a second language.

That’s millions of people. With short attention spans. Under pressure to get things done.

This phenomenon has changed how business is conducted. More than ever, we’re under pressure to communicate instantly and effectively. There’s a premium on getting to the point.

Anything else wastes time and costs money. 

What Lawyers Are Afraid Of

Traditionally, lawyers have been paid handsomely (and by the hour) to decipher and communicate in arcane, Latin-sounding language that covers every eventuality, however impractical or remote. To attract clients, lawyers need to appear smart. To maximize billings and revenue, they have a financial incentive to keep things gauzy and mysterious so their clients continue to need them.

As a result, lawyers fear the simple. They’re afraid that plain language isn’t detailed enough, that they’ll miss something. They’re afraid that shooting straight will take bread off their table.

This fear is rampant in legal communications. For example:

  • A few months back, we were negotiating an Agreement of Sale with a partner in a large New York law firm. We had written the following clause: “If the results of the Inspections are not satisfactory to the Buyer, the Buyer will have the right to cancel this Agreement.”

The New York lawyer revised it to read this way: “If the results of the Inspections are not satisfactory to the Buyer for any reason, in its sole discretion, or if Buyer elects for any reason whatsoever, or for no reason, the Buyer will have the right to cancel this Agreement.”

When challenged to explain how the second version changed the meaning of the first, he replied: “I’ve been writing this way for 20 years.”

  •  A second-year lawyer told us that in order to analyze a contract, she first had to translate it into simple English. Then, after drafting proposed plain language revisions, the senior partner ordered her to re-write them into legalese so that she would “sound like a lawyer.”

In the second example, four steps were involved:

  1. Reading.
  2. Translating from legal speak into English.
  3. Revising.
  4. Translating from English back into legal speak.

Instead of two steps:

  1. Reading.
  2. Revising.

For the client, this approach means paying a lawyer’s hourly rate for two unnecessary steps. (Or, for the firm, writing off excessive time that can’t be billed.) Either way, wasted effort, wasted time, wasted money.

And when the lawyer on the other side, like our New York colleague, works the same old wasteful way, the actual cost of the deal to the clients on both sides of the deal is unnecessarily high. Both clients complain about their bills, try to negotiate them down, and trade lawyer jokes.

A Simple Truth about the Value of Simplicity

For the business law client, this post offers a simple equation, and a simple truth.

Lawyer Communications 101

Unclear communication = Wasted time = Wasted money

There is simply no value, and no craft, in making the complex sound complex. The business lawyer’s craft lies in de-mystifying the complex.

That’s how to deliver value to the client.


[1] The effective communication ideas in this post are consistent with — in fact, a component of — well-recognized enterprise performance and improvement principles, such as Lean, Six Sigma, and Crew Resource Management. For example, see Marshall, David, Crew Resource Management: From Patient Safety to High Reliability, 2009, Parts 3 and 4.

Sources and Further Reading:

Lines of Communication, LLC. Excerpted extensively and used with permission.
Advanced Legal Writing and Editing, Bryan A. Garner, LawProse Inc. (Revised Edition, 2002).



Crowdsourcing Legal Services: The Good, The Bad, and The Awful

UpCounsel is fascinating, exciting, and terrifying at the same time. We applaud the effort to make high-quality legal assistance more accessible to small- and medium- sized businesses. Those segments are woefully under-served—priced out—and our new firm aims to fix that.

Lawyers should compete. They should charge market-wise fees. They should give clients budget predictability, keep them updated, and manage their expectations.

Lawyers = Paper Towels?

On the other hand, we abhor the Legal Zoom-type notion, fostered by UpCounsel, that legal services are a commodity like paper towels. That all lawyers have the essentially the same functions, competence level, and skill set. That the only difference between lawyers is price. That the store brand works as well as the premium brand.

We try to teach our clients that we perform to a standard, not a price. In transactions practice, doing a deal for a client involves more than ripping forms off a pad and filling in the blanks. It’s a craft.

Sure, any lawyer can learn crafts and skills. But a lawyer can’t learn talent.

Talent is what enables top lawyers to take in a client’s big picture, put a task in context, and draw on years of experience to solve problems and help clients make deals. To add value. To become a trusted adviser. To de-mystify things, break them down into digestible bites.

What Really Bothers Us About UpCounsel Crowd-sourcing

Here’s a couple of examples of what we’re driving at, and what bothers us about UpCounsel crowd-sourcing. First, suppose a lawyer hired through UpCounsel, for a low-bid $500 fee, drafts an industrial lease for a large tenant. What are the chances that the lawyer, at that price point, had sufficient interaction with the client to learn that she is a first-time real estate investor/landlord, that when she bought the building it already had another, smaller tenant, and that the leases ended up with conflicting damage restoration obligations for the landlord--so that if the building burned down, the large tenant could cancel its lease but the landlord would be obligated to rebuild the entire building for the small tenant? What are the chances that the lawyer found out that the lease had to be approved by the landlord’s lender, and built in a contingency for that?

Second, and very telling, UpCounsel offers free fill-in-the-blank forms on its site. That’s nice, but the average reading level in the US is 10th grade, and these forms are structured and written in old-school legalese—replete with “herebys,” “whereases,” “hereuntos” and run-on one-sentence paragraphs that are 100-plus words long. Modern practitioners don’t write like that anymore. These forms don’t advance the cause of client clarity and transparency. (By the way, this rant has a grade 8.2 reading level.)

In carving out its space, UpCounsel has leap-frogged over the consumer calamity that is Legal Zoom. We would even say that UpCounsel is two-thirds great.  It’s great because it will drive stodgy, traditional lawyers to wake up and sharpen their game. It’s great because it offers a way for lawyers to get work. 

But UpCounsel is one-third awful, because it stands on Legal Zoom’s shoulders. Perpetuating—trading on—the dumb and dead-wrong premise that talent and quality don’t matter. That all paper towels will sop up the mess.

Judging by what UpCounsel makes available for download, we question how, and how well, they vet their legal talent. And if UpCounsel can’t tell the difference between excellent, average, and poor work product, how can the consumer do that?

Crowd-sourcing of legal services is, in the end, not much different than crowd-sourcing a writing project. A head-long race to the bottom.



Top 5 Things Your Business Lawyer Should Do For You

The Need for "Law Care" Reform

Lawyers don’t enjoy the greatest image. For business clients, they’re a necessary evil—or maybe just evil. Lawyers complicate things, they mystify things, they impede deals. You ask them what time it is, they tell you how to build a watch.

And they charge a fortune for spinning wheels and shuffling papers. What, a hundred bucks to say good morning?

The result: business folks are reluctant to call their lawyers until they get into real trouble. And that’s the most expensive kind of lawyering there is. So the cycle continues, and so do the caustic lawyer jokes.

Okay, in some ways, lawyers have brought it on themselves. And sometimes, people simply (we’d say mistakenly) lump business lawyers together with ambulance chasers and criminal defense lawyers.

Does Your Business Lawyer Measure Up?

If this is the system you’re used to, then it’s broken. But you—the business client—have the power to diagnose what’s broken, and drive the fix. Let’s call it “law care reform.” Here are the top 5 things a business lawyer should do for you:

  1. Be transparent. This is about setting and managing your expectations in three ways:
    • What’s the job? At the outset of the relationship—in the engagement letter—the lawyer should specify a scope of work. And if the scope changes, confirm the changed scope in writing.
    • How much will it cost? If you’re in business, you want budget predictability, if not certainty. This means having flexible (or creative) billing options, which may include a flat fee or maximum price arrangement. This can be hard to do, because some business engagements—especially litigation—defy precise pricing. But even then, to avoid sticker shock down the road, the lawyer should give you a best case-worst case range, or collaborate with you to devise a phase-by-phase billing structure.
    • What did you get for the money? Your lawyer’s bills should contain detailed, itemized time entries so that you know exactly what was done and when. “Client phone call” tells you nothing. “Client phone call to discuss open lease issues, options, recommended solutions, and next steps” explains things, refreshes your memory.   
  2. Communicate, communicate, communicate.  This means—first and foremost—calling you (or emailing you) back. Being accessible, via phone, email, or text.  Keeping you updated, letting you know what’s going on, even if there’s nothing new to report. Giving you info proactively, without you having to chase it. 
  3. Keep UP.  Business deals move fast, and your time is money. Your lawyer should think like a business person, not like a dude in a powdered wig. This means moving at business speed, and in real time—not snail mail time. Emails, even texts, beat phone tag, and everything beats regular mail.
  4. Be your hub. Your business lawyer should understand your big picture and all the moving parts, not just isolated transactions. Be your “go to” teammate. The person with a ready pool of resources to solve your problem. 
  5. Add value. Your lawyer should move the ball for you and be an asset to your business, not a dollar drain. How?
    • De-mystify and simplify things. Break down complexity in to digestible bites. Communicate in conversational English. Get to the heart of it, give you the spitballs, and move on. 
    •  Figure out how to do what you want to do, not tell you what you can’t do.
    • Advise you: give you options, give an opinion, take a stand. That’s what you’re paying for.
    • Give you useful, actionable information. Like this blog.
    • If your business lawyer doesn’t measure up, you’re a business person. You know what to do.