If you are reading this article, you’re either gearing up for the rewarding chaos of Small Business Administration (SBA) lending, or you are already knee-deep in the middle of it and praying for a lifeline. Either way, let’s clear some myths and save you from a financial face-plant.
Remember, applying for an SBA loan isn’t just paperwork. It’s navigating a high-stakes obstacle course. One slip-up and your client’s SBA dream could vanish faster than free drinks at a broker convention. Let’s ditch the generic advice. Brokers, like you, need hard truths without the song and dance. Here’s exactly what you must not do in an SBA loan application.
Don’t fake numbers
Think you can slap some vague projections on a napkin and call it good? That’s about as effective as telling a mortgage underwriter, “Trust me, they’re good for it!” SBA lenders need concrete, credible numbers, not some lunch break scribbles.
Coach your clients to focus on profit margins, operating expenses and detailed cash flow projections. Numbers not their thing? Direct them immediately to a professional. There are companies that specialize in putting the numbers together for you. They can pump out a business plan that would make an underwriter’s heart swoon.
Have a less complicated loan request that may not need a robust business plan? AI chatbots such as ChatGPT, Grok and Claude are all great ways to build out figures that are worthy of your client’s application.
Just take the time to tell your AI source what the business is, the goal of the loan and any relevant details about where the borrower expects their business to go in the next two years. Then sit back and watch the magic unfold as you tell it to “write a business plan for my client’s business that I can provide to an SBA lender that answers all of the questions that they will typically have on this type of a loan request…”
Don’t downplay risks
Never minimize or dismiss potential risks associated with your client’s business. Statements such as “no competition” or “guaranteed market growth” immediately raise red flags for SBA lenders, who meticulously evaluate the realism of every application. Here are the facts: They won’t believe you.
Guide borrowers to proactively identify all potential risks and clearly outline practical strategies for mitigation. Transparency in addressing risks builds lender confidence, strengthens credibility and significantly improves your chances of securing approval.
Understand that your lender is taking a large monetary risk in these loan requests, so look at each situation as though you were the investor in the borrowers’ requests. What would your concerns be? Ask the client the hard questions and document the answers.
When setting expectations with your clients, stay grounded in the realities of SBA lending. Clearly communicate that SBA loans typically have quarterly adjustable interest rates tied to the prime rate, meaning payments could vary. Inform clients upfront about the standard terms — such as a maximum of 10 years for business acquisitions or working capital, and up to 25 years for real estate transactions.
Also, thoroughly explain personal guarantees and collateral requirements. Clients must understand that personal guarantees may involve placing liens on personal assets, including homes.
Encourage clients to prepare realistically, maintaining clear financial statements, stable cash flow projections and comprehensive documentation. Precise, realistic expectations establish trust with lenders and significantly enhance the likelihood of approval.
Don’t be desperate
The absolute worst moment to apply for an SBA loan is when your client is financially desperate, juggling debts and barely surviving. Desperation screams “high risk,” and lenders can smell panic from miles away. The borrower can’t hide that desperation. Their numbers, and their habits, bleed through very clearly.
Guide borrowers to apply while finances are stable and financial statements are strong. A steady ship secures funding faster than a sinking one.
Don’t ignore requirements
Collateral is a critical element in SBA lending. The SBA requires lenders to secure loans with available collateral, which generally means all borrower assets, both business and personal, must be pledged if available. However, the official SBA rules specify that lenders should not decline a loan solely due to insufficient collateral.
This means your borrower needs clear guidance: transparency regarding collateral is essential. Explain precisely what assets may be considered as collateral, including real estate, equipment and even personal residences.
If your client lacks significant collateral or equity, emphasize that this does not automatically disqualify them from financing. Many SBA deals, especially those centered around strong cash-flow businesses, can still be successfully financed with minimal collateral.
Clearly communicate the risk of personal guarantees and potential liens but reassure clients that a lack of collateral doesn’t necessarily kill a deal. Experienced brokers routinely structure successful transactions even when collateral appears thin, relying on the strength and stability of business cash flows.
Don’t ghost lenders
Communication delays are one of the top reasons deals stall, or worse, fall apart. If a lender requests documentation or clarification, a prompt response isn’t optional, it’s mission critical.
SBA loans are structured processes with multiple internal checkpoints: business development, credit review, underwriting and closing. Each handoff depends on timely, accurate information. A 48-hour delay can trigger the bank to deprioritize your loan, derailing momentum and frustrating everyone involved.
As the broker, you need to establish urgency with your borrower on day one. Make it clear: once the deal enters a lender’s system, every day matters. Set a cadence for communication, and don’t wait for the lender to follow up. Stay ahead of them. Respond quickly, even if just to confirm receipt and provide a timeline for what’s being gathered. Be detailed and organized with submissions. Sending incomplete packages only delays things further.
Also be aware of this: Lenders are tracking responsiveness. A disorganized or slow borrower (or broker) creates doubt, which can impact credit decisions. The opposite is also true. Quick, complete and clean communication builds confidence and shows the lender you’re both engaged and professional.
Treat your lender like a mission partner. Keep communication consistent, proactive and honest. This builds trust, accelerates the process and dramatically increases your odds of closing.
“Navigating SBA loans isn’t easy, because it’s not supposed to be. These are government-backed loans designed to stimulate real, long-term economic growth. That means oversight, structure and scrutiny.”
Navigating SBA loans isn’t easy, because it’s not supposed to be. These are government-backed loans designed to stimulate real, long-term economic growth. That means oversight, structure and scrutiny. But for borrowers who are prepared, and the brokers who know how to guide them, the SBA 7(a) program is one of the most powerful financing tools available.
Avoiding the common mistakes that are laid out here can save weeks of wasted time, preserve your client relationships and get more deals funded. Know the process. Respect the details. And communicate like it’s your full-time job, because for the life of the deal, it is.
The next borrower is out there, hoping someone like you knows how to lead them through the chaos. Be that broker. Get them funded.
