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The Commercial Capital Gazette
Commercial Mortgage and Real Estate News
Published By 1st Coastal Commercial Capital
All
SBA Lenders Are Not Created Equal
A client recently called our office and
told us he had a 680 FICO credit score and because of this, he wasn’t qualified for
a Small Business Administration (SBA) loan. This couldn’t be further from the
truth. Like many small business owners, this client went into a local bank and
was told his credit score would prevent him from receiving an SBA loan. The
client took this rejection as finite, and it turned him off from the lending
world for months afterward until we were able to clear up his misconceptions
about the SBA program.
By
definition, the SBA is a government agency that provides resources and support
for small business owners and entrepreneurs. Most people associate the SBA with
a means of access to capital; that is, small business loans. While the SBA helps
facilitate financing between SBA-approved lenders and small businesses and
entrepreneurs, it’s important to remember that the SBA isn’t the lender.
The
SBA guarantees tens of billions of dollars of loans each year in order to
support the country’s growing small business population, so programs like the7(a) Loan
Program and SBA Express
Loans are something that all small
business owners should consider when looking into financing.
Each
SBA lender treats the program differently – different levels of risk tolerance,
experience, and comfort. Because of this, what’s set in stone with one bank may
not be so with the next bank down the street. It’s vastly important for small
business owners to remember this when seeking out an SBA loan so they can
compare lender to lender and evaluate their options.
Lender
vs. Lender
Because
the SBA isn’t the actual lender, small business owners should think of each SBA
lender as a separate entity with different options and experiences. Just as
you’d shop for the best rate on any other service, you should consider multiple
SBA lenders when seeking out an SBA loan.
All
lenders, depending on their experience and appetite for closing loans, will
likely vary slightly in their terms. Likewise, each lender may interpret
the SBA Standard Operating Procedure (SOP) documents differently. Because the SBA has
to take on the risk associated with backing certain banks and lenders, it has
developed the SOP for banks and lenders to follow in order to have protection
through the SBA guarantee for loans.
The
terms outlined in the SOP can be tricky to understand, even for those with vast
experience dealing with SBA loans. I recently wrote an article for the Wall Street Journal about a 10-year lease or option on a 10-year
lease requirement that I thought was a necessity for an SBA Express
Loan. The reason I thought this was a requirement was because my SBA lender
contact had always told me that the 10-year lease or option on a 10-year lease
was a mandatory condition. However, this isn’t the case.
I
believed what my SBA lender told me, somewhat foolishly, without thinking that
each lender will interpret the SOP differently. What is “standard” may not
always be so black and white. There are a lot of gray areas for SBA lenders. As
a professional loan broker who understands the complexities of loan programs,
even I made a mistake. Small business owners with limited understanding of SBA
programs will likely fall into the same trap.
Additionally,
banks use the SBA differently. Some banks use the program sporadically, while
others use it quite often. Some banks have higher risk tolerances, while others
are more conservative with their small business lending. How each lender uses
the SBA program may contribute greatly to whether or not the lender will offer
you a loan.
Where
to Start
SBA
loans are notorious for taking a long time to get, with many hoops to jump
through before being approved. The time-consuming application process and
requirements are enough to turn many people off from the option, but it’s still
one of the best loan sources for small businesses because of the longer
repayment terms and lower payments compared to other options, such as
alternative lending.
When
you start looking for an SBA loan, consider both large national banks and small
community banks. Large banks are normally the most active SBA lenders, but many
borrowers opt to go with community banks that have a strong focus on business
lending. Smaller banks tend to have more flexibility with approving loans and
can offer a much more personalized touch to the business-lending process.
The
most important thing when starting the search for an SBA loan is to make sure
you’re talking to a seasoned SBA professional. Because of the nuances of the
program and the sometimes lengthy application process, you’ll want to be sure
that you’re working with a small business loan expert with SBA loan experience.
Doing so will likely increase your chances of getting the loan for the terms
that work for your business, while also giving you confidence that you’ve done
everything possible to get the best loan.
Consider
All Options
In
our experience at 1st Coastal Commercial Capital, we often find that one lender will suggest one
loan solution to a borrower while another lender has a completely different
answer for the same situation. It’s clear why small business owners and
entrepreneurs should shop around for an SBA loan and consider all options.
There’s
normally always more than one choice, even within the SBA lending environment.
For small business owners, this means that even if you’re turned down by one SBA
lender, it doesn’t mean you should call it quits on the program as a whole.
Rejection
from an SBA lender could simply mean that the lender isn’t in a position to
offer you the best deal for your loan. Another SBA lender may have a loan
solution for you, and yet another may have a similar solution with even better
terms. If you think you’re a good candidate for an SBA loan, don’t give up after
a rejection. Chances are, there are lenders out there able and willing to give
you the financing you need with reasonable terms.