The myth of the SBA loan.
EDITION 12: INVEST ON PURPOSE
For people who want to support small businesses, Small Business Administration (SBA) loans might seem like they are getting the help they need. Government-backed funding for small businesses? Sounds perfect, right?
Except… most small businesses, especially women-owned ones, don’t actually get these loans.
Let’s back up. Did you know…
The SBA was created in 1953 when Dwight Eisenhower was president, color TV was brand new, and small businesses were struggling to get funding (some things never change, huh?).
Instead of lending directly, the SBA acts like a well-connected friend who tells banks, “Hey, we vouch for them!” The idea? Reduce risk for banks so they’ll lend more freely.
But here’s where things fall apart. Banks still call the shots, and that means:
You need excellent credit (680+ is the standard)
You need collateral (ahem, something the bank can take if things don’t work out)
You need to put in 10-20% of your own money
And even if you qualify? You’re looking at a mountain of paperwork and waiting 60-90 days (or longer) for funding.
It’s like being told there’s a well-paved hiking trail… only to show up and find out you need mountaineering gear, a personal tour guide, and six months of training.
Reality check: who actually gets funded?
Most business loans aren’t approved. Period. It’s pretty grim regardless of where the SBA loan comes from.
Big banks approve just 10-30% of business loan applications.
Small banks and credit unions approve 20-40%.
So, roughly 50% of applicants are rejected outright.
And of the SBA loans that do get approved? Only 1 in 5 go to women-owned businesses, and even fewer go to people of color.
For investors who assume small businesses already have plenty of funding options—this is your wake-up call.
SBA loans sound like a great bridge, but in reality, it’s a tough climb, and most people don’t make it across.
Why this matters…
Yes, SBA loans have helped many businesses. But they’re not solving the funding gap.
If you’re an investor who wants your money to support small businesses, thinking they’re already covered by traditional funding isn’t reality.
So what’s the alternative?
Next week, we’ll explore better funding paths—community lenders, private credit options, and direct investment models that give investors more control and actually help the businesses that need it most.
In summary…
SBA loans might be the most talked-about path across the Small Business Finance Canyon, but they’re not the only way. For some businesses, these loans can be a great option. But for many—especially newer, women-owned businesses—they’re just another dead-end trail.
And for investors who care about impact, it’s time to look beyond the traditional routes and put our money toward building new paths for small businesses to thrive.
Make sure to follow us on LinkedIn and Instagram. Let’s create a better way, together.
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The SBA Loan Cheat Sheet (For the Curious)
If you’ve ever googled “SBA loan”, you’ll find there are different types. So here’s a quick guide:
7(a) Loan – The “Tourist Trail” (Most common, up to $5M for almost anything, but slow and hard to qualify for).
504 Loan – The “Heavy Equipment Route” (Great for buying real estate or big equipment, but can’t be used for payroll or inventory).
Microloan Program – The “Lite Trail” (Up to $50K, easier to qualify for, but shorter terms & higher interest).
SBA Express – The “Express Route” (Faster processing, but higher interest & still requires strong financials).
This newsletter is for informational purposes only and should not be considered financial advice.
Sources
https://www.nerdwallet.com/article/small-business/small-business-loans-sba-loans
https://www.bankrate.com/loans/small-business/sba-loan-race-and-gender-statistics/#sba
https://smartbizloans.com/blog/5-reasons-you-cant-get-an-sba-loan
