SBA Lending will go down in history as the most effective Private-Public endeavor ever created by the federal government. It is the only government program that pays for itself leaving very little, if any, exposure to the US taxpayer. SBA lending provides access to capital for small businesses that would not be available to them through conventional loans. This program has also become wildly popular due to the secondary market and the attractive fee income it produces. This remarkable tool for job creation would be even more utilized if lenders had the resources available to them through SBAadvisors.
Small business represents over 75% of new lending opportunities. Yet lending to this market is accompanied by the highest risk. The SBA government guaranty lending program has gone a long ways in providing an incentive to lenders to make more loans. These loans, by credit policy and underwriting guidelines, are more heavily scrutinized than conventional loans. With the growing issues of SBA compliance, lenders must do it right, or please – do not do it at all.
Two Types of SBA Lenders
You will find two types of SBA lenders: those who have done SBA loans and swear never again to try itor those lenders who have had fabulous success. The first group usually tries to offer SBA loans based on their subjective approach, not relying on outside support or counsel. Some of them have hired an SBA business development officer from another bank without realizing they had just been sold on the notion a salesman could deliver a strong SBA lending program, without ever having underwritten or closed an SBA loan.
The type of lender who has enjoyed great success started with a strong business plan and hired the right staff after significant due diligence. With the right experience in place, SBA lending can be an incredible revenue-generating program for the lending institution.
SBAadvisors has been providing SBA Department Business Modeling and SBA strategic planning for over 20 years. This starts by understanding the business model should be customized to your parameters and budgeted accordingly. Business models vary from those who want a lot of small loans to those who want to be very selective. It should be based on your individualized strategy. Do you need loan volume? More fee income? Are you tired of losing business to your competitors? What will your credit policy allow? Will you do new start-up businesses or franchised businesses? Will you hire a full SBA-experienced team? Would you rather utilize a proven LSP (loan service provider)? These and many other questions will determine your business model and, therefore, your overall budget. Never start an SBA lending program without these answers and a budgetary roadmap to insure loan growth and profitability.
Two Key Ingredients
Those with the greatest level of success in SBA lending have discovered the two key ingredients:
- Speed and efficiency of the loan delivery process
- Maintaining of a high level of SBA compliance
To attract and keep good small business customers, priority must be given to quick loan decisions and loan closings. The customary timeline for the competitive SBA lender includes giving an eligibility and contingency approval to a customer within two business days of receiving an initial application. A complete approval should be deliverable within another 5 business days after receipt of a complete document package.
Loan closing should be completed in a timely manner, as well. There are some loans, like real estate deals, that will take longer due to obtaining phase one reports and appraisals. But for the most part, an SBA loan should close within three to four weeks after loan approval. New lenders will have to add a couple of weeks to this process until they obtain preferred status (PLP) with the SBA.
SBA Government Guarantee
The SBA loan comes with a significant government guaranty. As such, the SBA expects the lender to protect the interest of the government and the US taxpayer. There are several standard operating procedure notebooks that contain everything you need to know to meet this obligation. Not adhering to these regulations will jeopardize the guaranty. There are compliance issues in every aspect of the life of the loan… from initial eligibility and credit analysis, closing and funding procedures, to servicing and even liquidating. Critical to your success will be having the right staff in place. They will enable you to process a significant amount of loans without having any major concern about losing the SBA guaranty.
Hiring SBAadvisors gives you the level of expertise that will yield the success of SBA lending you desire. Contact us here to schedule a free 30 minute consultation.