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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.

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