Financing programs through the U.S. Small Business Administration (SBA) can help you expand your small business by providing financing when conventional lenders may not.

Unfortunately, changes in government programs have led to misunderstandings, even myths, here in Kitsap County and around the country.

My goal is to clear up some of the common myths about SBA loans.

Myth 1: My business is strong: I don’t need an SBA loan.

Many successful small businesses choose SBA loans for a variety of benefits regardless of the company’s condition:

Longer terms — Seven years for working capital, 10-15 years for equipment and up to 25 years for real estate;

Lower down payments — Improves your cash flow;

Flexible payment options — SBA loans offer monthly installments of principal and interest with no balloon payments;

Many uses — Business owners can purchase real estate and buildings, expand and modernize facilities, buy equipment and inventory, even finance increased receivables and working capital.

Myth 2: People with bad credit can get SBA loans.

No, in fact you need to demonstrate:

A good business plan — Showing good cash flow and credit history is crucial;

Collateral — Although SBA loans often require less collateral than conventional loans.

Myth 3: The SBA lends money directly.

That’s not the case. The lender — a bank, a credit union or non-bank lender — lends the money, and the SBA guarantees the loans on a limited basis. In case of a default, the lender is still at risk, but at a lower amount. This encourages banks to make loans because it reduces the risk.

Myth 4: SBA loans are government grants and don’t need to be repaid.

Again, no. The lender and the SBA require you to pay back SBA loans.

Myth 5: Any small business can get an SBA loan.

No, there are several specific requirements. To qualify, your small business must be:

• Independently owned and operated
• Not dominant in your market
• Able to meet SBA employment and sales standards.

Talk to an experienced SBA lender at a bank, credit union or non-bank lender to help you determine your eligibility.

Myth 6: Getting an SBA loan means major red tape.

Yes, you can expect a certain amount of paperwork with this federal program, but some SBA loans actually require minimal paperwork.

Myth 7: The SBA is everywhere, so I can get an SBA loan anywhere.

The SBA is a national program that works with local banks, including those that have earned the Preferred Lending Program (PLP) status to help make the SBA process more streamlined for their customers. Work with both.

Now that we have debunked these common myths, let’s look at the types and uses of SBA loans.

The 7(a) Loan Guaranty Program. The primary SBA loan program, the 7(a) guarantees as much as 90 percent on some loans, after increases from former levels through the American Recovery and Reinvestment Act. The Act also reduces some loan fees, making SBA-guaranteed loans more affordable.

Unlike some conventional loans, SBA loan terms do not have to include “balloon payments.” You’ll make monthly installments of principal and interest.

Up-front costs for SBA loans are minimal, and you can often finance any loan fees within the loan itself.

The 504 Loan Program. This program works through banks and community development companies (CDCs) to finance up to 90 percent of real estate acquisitions or improvements, or the purchase of equipment — with a fixed interest rate over 20 years. Banks finance 50 percent and adjust interest rates every 5 years. The CDC finances 40 percent with rates fixed for up to 20 years. Under the American Recovery and Reinvestment Act, borrowers can also use 504 loans to refinance existing loans for fixed assets as well as for new acquisitions.

With a 504 loan, you provide 10 percent of the equity in projects, versus the 25 percent that banks may require for conventional loans. This helps you preserve capital for other important purposes that enhance your competitiveness. You can borrow as much as $4 million in certain circumstances through the 504 program, which has a very competitive long-term fixed rate.

Check with a local lender for information on 504 loan requirements, such as job creation and owner occupancy.

Finally, visit www.sba.gov to find information on the financing your company needs. Working with banks, the SBA and a CDC, you may be able to grow your business, even in challenging times, with government-guaranteed financing.