From SCORE Richmond by Doug Carleton:

Tens of thousands of keystrokes have been expended for years writing about SBA loans.  They’re good, they’re bad, they’re complicated, they take too long, and on and on and on.  But what I almost never see is what they really are.

SBA loans are commercial bank loans that are guaranteed by the SBA.  SBA does not make loans except for disaster loans.  Because they are commercial bank loans, banks use their own credit guidelines, but they have to meet the SBA credit guidelines which are very similar to the banks.  Real estate gets a 25-year amortization, equipment 10, and working capital 7.  SBA’s primary purpose is to offer borrowers lower monthly payments in order to save their cash flow because of the longer amortizations.  The important thing to remember though is that the bank is going to underwrite it generally to their own credit guidelines first even if SBA would allow broader discretion and approve it for a guarantee.  SBA requires that a bank approve a loan first before it requests the SBA guarantee.

When people say that they don’t want to bother because of too much paperwork, it is frequently the bank asking for normal paperwork that would be required for any loan.  Nothing is different.  To receive the SBA guarantee, there are certain extra forms required by SBA that are not already required by the banks during the loan approval process.  More often it is in the closing process where much of the paperwork lies, and if a bank does not do much SBA lending and does not have a dedicated SBA department or personnel, closings can be difficult and time consuming.  But is more cash flow because of the longer amortizations not worth the extra effort?  Hundreds of millions of dollars in SBA loans are made every year.  Don’t overlook the possibility.