Small Business Loans for Women: An Interview with the Small Business Administration

Yet for some reason, women entrepreneurs still have to hurdle over many obstacles, especially regarding loan acquisition. LoveToKnow Business spoke with Dave Lentell, a business development specialist for the U.S. Small Business Administration, about how the SBA works to "level the playing field" for small business loans for women, in addition to a variety of other programs and services.

Why the SBA Makes Obtaining a Loan Easier

“Starting a small business is one of the riskiest things an individual can do,” Lentell says. “Therefore, loaning money to a small business is one of the riskiest things a lender can do.” While banks are often the major source of short-term lending, most institutions hesitate to gamble on longer loan terms. “However, if the SBA agrees to participate in the risk by offering a federal guarantee of repayment, lenders are more likely to extend long term loans to entrepreneurs.”

A Breakdown of SBA Loans

The SBA specializes in backing two types of loans:

• the flagship 7(a) program, primarily used for working capital;
• the Certified Development Company program, also known as the 504 loan, requested to buy or rehabilitate fixed assets such as land, buildings, machinery and equipment.

The average size for a 7(a) loan in 2005 was $157,459. For a 504 loan, the amount was $545,700. Lentell notes that interest rates on SBA loans are negotiated by the borrower and the lender, but typically cannot exceed 2.75 percent above the Wall Street Journal prime rate.

Women received 25,587 SBA loans in 2005, for a total of $3.4 billion loaned nationwide. These figures represent a 39 percent increase in the number of loans and a 27 percent increase in the dollar value from the previous year.

Advantages and Disadvantages

Lentell lists three advantages to women using an SBA loan to finance a small business:

• Longer repayment terms. Most SBA loans are repaid in seven-to-ten years, with some real estate loans extended to 25 years. Most conventional loans require repayment within five years, maybe less. Loans may also have flexible payment schedules, such as monthly, quarterly, semi-annual or annual payment, depending on the type of business.
• Collateral is not a requirement to qualify for an SBA loan. However, collateral must be pledged if it is available.
• As stated before, banks are more willing to finance "risky" ventures. The SBA guarantee helps to offset this category, typical of most start-up small businesses.

Potential disadvantages may include:

• Slightly higher interest rates. Though SBA loans are often comparable to banks, by comparison, there may be slightly higher interest rates on SBA-backed loans. The SBA has set maximum interest rates that a lender can charge, but that does not necessarily mean all lenders will charge the higher rates.
• Additional requirements. While most SBA programs allow lenders to use their own lending practices and procedures, there may be additional requirements you’ll need to meet when applying for an SBA loan in contrast to a direct bank loan.
• Possibly longer wait for approval. While the SBA has streamlined its application process over the years (some programs such as SBAExpress offer same-day approval if a lender is using the SBA’s electronic transmittal process), the approval process on some SBA loans may take longer than a direct bank loan without an SBA guarantee.

“Bear in mind these potential disadvantages are offset by many factors,” Lentell says, “Not the least of which is that many lenders are hesitant to makes loans to small businesses – particularly start-ups – without the SBA guarantee.”

SBA Loans Are Packed with Benefits

When considering the advantages and disadvantages to securing a loan through the SBA, Lentell offers this advice: “Small businesses using SBA-backed financing are automatically steered toward SBA partner resources that can give them a better chance for success. Anecdotal evidence over the years has long suggested use of SBA resources help businesses achieve.”

Certainly good news for women entrepreneurs, but more importantly, SBA resources are available to any small business owner, not just those who seek funding. Lentell adds that comparison studies are currently underway to measure small business success for owners who use such resources and those who don't.

Other Helpful Services and Programs

Whether their venture is in its infancy or advancing to another stage of development, female business owners will find a host of services and programs through the SBA.

“In addition to basic financial, management and technical assistance programs,” Lentell says, “the SBA offers a pre-qualification loan program, services through the Office of Women’s Business Ownership, online advice through Women’s Business Centers and a cadre of counselors who belong to SCORE.”

Lentell recommends the following Web sites for more specific information:

• Small Business Administration
• SBA’s Women’s Business Center
• SCORE-Service Corp of Retired Executives
• SBA Development Centers
• Management for Growth
• Women-21

Also, many states sponsor small business assistance programs targeted to the endeavors of female business owners. Obtain more information about small business loans for women and other resources from the state’s department of economic development or commerce.

~Tracey L. Kelley

Related Links

• Small Business Administration
• Small Business Grants
• Business Angels
• Creative Business Financing
• Small Business Management
• Business Planning
• SBA: Business Information Centers
• SBIC