Welcome to the SBAadvisors Blog!

How Much Does It Cost to Get Started and When Should We Expect to Break Even?

With any new business plan, we want to know all about the investment needed and the timeline to profitability. As a Commercial/SBA Lender, you need this knowledge to determine the credit strength in any new deal. When a bank is considering investing in a new SBA lending platform, it is just as vital to fully understand the costs associated, the variables involved and the timeline to profitability. Recently, one of my new clients told me that they had already completed the “budget” for a new SBA lending initiative at the bank. Like many created “budgets”, it was a quick view of what was to be expected. Adequate for exploratory purposes, but not when you decide to commit to an SBA lending platform.

I was asked by this client to complete a 3 year SBA departmental budget. When completed and compared to the budget created by the bank, they could not have been more different. I completed two models for 3 years each. The first showed results based on holding all the loans. The second model showed results based on selling the SBA guaranty portion on the secondary market. You can probably guess which one made money in the first year and which one did not show a profit until late into the second year.

There are so many variables that need to be considered in an SBA budget:

Forecasting how many loans to be approved and funded in each of the 3 years.
What average loan size to anticipate?
What average pricing on the loans should be targeted?
How many days or weeks from initial approval to a closed and funded loan?
What incentive should be paid to commercial lenders for doing an SBA loan?
Should we pay broker fees and how much?
If we sell the SBA guaranty, what average pricing should be expected?
Should you charge a packaging or processing fee and if so, how much?
Should we totally staff the department or utilize a Loan Service Provider (LSP) until loan production proves full time staff are necessary?
Who and what skill sets are needed first as you get started and how much will they cost?
What percentage of total loan production should be calculated for Loan Loss Reserve?
What should be spent on marketing?
Should we just use internal commercial lenders or hire dedicated SBA lenders?
What incentives and how much should be considered for SBA BDOs?
What other “best practices” should be accounted for including software, training, etc.?

And there are many other questions or variables that need to be taken into consideration. But when the budgets are completed, management can have a very clear understanding of the costs involved and when and what and how much money can be made in each of the first 3 years.

Solid information for making sound decisions about starting and growing an SBA department makes a huge difference in those new SBA lenders who succeed in a big way and those that don’t come close to meeting expectations.

(For more information and assistance in developing an SBA department budget, please contact Tim@SBAadvisors.com)

“The Top 5 Requirements to Starting or Expanding an SBA Lending Platform” written by Tim Terry, CEO of SBA Advisors.

Welcome to the SBAadvisors Blog!

Dec.

01^st

The Top 5 Requirements to Starting or Expanding an SBA Lending Platform: #4 PROCESS

By Tim Terry |

Best Practices in SBA Lending

Compliance and the SBA Guaranty

The fourth “P” is Process

At the beginning of this blog series, we discussed the foundation of an SBA lending platform: the SBA Credit Policy (aka: the PLAN). Just as important to your success is to write an SBA Loan Policy and Procedures Manual establishing the PROCESS.

Why establish the PROCESS?

There is a history of lenders who make a few SBA loans with little to no experience. Too often one of these loans go bad and the lender discovers that the SBA will not honor the guaranty because of a failure in SBA compliance. There are other lenders who make a significant number of SBA loans. When one loan goes bad, there tends to be sleepless nights wondering if the SBA will find a reason to not honor the guaranty. As long as you are lending, you will have loans that default.

However, you do not need to worry or have sleepless nights. The facts are that the loans not honored by the SBA due to a compliance issue represent only .05%. This shows that the vast majority of SBA lenders focus on compliance throughout the life of the loan and they apply compliance on a very consistent basis. You can too!

Compliance Requirements

It is important to know that the SBA loan has significant compliance requirements throughout the entire loan process. Ensuring the request is eligible may be the most simple of all the compliance requirements. Other additional compliance requirements are in the processing, closing, funding and servicing of the loan.

Identifying these requirements and making policy and procedures to ensure compliance throughout the process should be documented in an SBA Loan Policy and Procedures Manual. The SBA SOP 50-10-6 covers these processes and requirements in great detail. However, it is vital for your SBA team to have these processes outlined. This mitigates no balls are dropped through the cracks and that every loan follows the exact same process.

By establishing your process with compliance built in, the lender can develop a premier fast and efficient loan process. I am asked often by SBA lenders how they can attract more loan applicants.

The lenders who have a streamlined process that delivers timely results for the applicant can build a strong reputation in the marketplace. When the focus is “results for the customer”, word spreads quickly where to go for an SBA loan.

A thoughtful and practically written Policy and Procedures can ensure this and give the bank a very competitive edge.

(For more on writing an SBA Policy and Procedures Manual, please contact Tim Terry at Tim@SBAadvisors.com)

“The Top 5 Requirements to Starting or Expanding an SBA Lending Platform” written by Tim Terry, CEO of SBA Advisors.

Welcome to the SBAadvisors Blog!

Nov.

13^th

The Top 5 Requirements to Starting or Expanding an SBA Lending Platform: #3 PEOPLE

By Tim Terry |

Best Practices in SBA Lending Staffing or Using an LSP

As mentioned in earlier blogs, there is a lot of SBA compliance that factors into a successful SBA lending platform. To maintain a consistent compliant process, it takes experienced SBA lenders, SBA credit analysts and SBA loan processors. While SBA lending has doubled over the past 5 years, the number of experienced SBA staff has not. Supply and demand have made SBA talent at least 25% more expensive than their counterparts in commercial lending.

So whether you are starting a new SBA lending program or simply wanting to expand and grow, it is a very real challenge to know how to approach staffing the SBA group.

There are thankfully two approaches. One is simply to pay market pricing for the SBA experience you need. Second is to utilize an LSP service.

One of the best things to come out of the great recession is the SBA assistance that is available through Loan Service Providers (LSP). These companies came together as a result of many highly valued and experienced SBA lenders being laid off during the recession. To keep busy, these SBA professionals came together to provide complete backroom support for SBA lenders who did not want to do many SBA loans or did not want to invest in hiring until loan production could support it.

Utilizing a qualified LSP while you ramp up production is actually a great strategy. It becomes a variable cost to processing SBA loans.

These are a full-service LSP’s providing support in determining eligibility, preparing credit memos for you to review and approve, submit applications to the SBA, assist in closing and funding, assist in selling the loan on the secondary market, and provide the 1502 monthly servicing report to the SBA. In addition, they will provide a number of significant and material benefits:

1. They are ready to get started immediately.

2. They provide meaningful training for your lenders and support staff at little to no charge.

3. They bring 50-plus years of experience.

4. They understand and will teach you SBA lending “best practices”.

5. They provide valuable mentoring at no charge.

6. As your SBA lending grows beyond $15mm in annual production, they equip the Bank to handle its own, in-house SBA department, effectively working themselves out of a job. You will benefit from “Best Practices” as you grow.

7. They assist with a seamless transition from an external to an internal department.

8. Transfer responsibility one job at a time. Take on credit then wait to transfer closing.

9. Have a quick question? How about answers at no additional charge.

10. They bring SBA compliance knowledge that is difficult to hire.

11. They seldom charge for the significant amount of work performed on deals that never close.

12. They get paid when the loan closes, motivating them to work in a diligent and timely manner.

13. They provide a variable cost structure; an advantage over the fixed overhead of an in-house team.

14. Seldom will you ever run across a deal type or problem that they have never seen.

15. You don’t worry about the bank competition stealing your newly trained people.

Obviously, the other choice is to hire. Finding the talent you need is a substantial challenge when you may not know much about SBA lending. You should never hire an SBA BDO who says he can build out a department. That is unless, he has done it before. So how do you know who is best to hire?

First, determine how much annual SBA lending you are wanting to pursue. It needs to be at least $10 to $15mm if you want full time staff to process, close and service. Here is my best recommendations on staffing needs based on loan production:

$5 to $15 million: One SBA loan producer and one experienced closing, funding and servicing processor.

$15 to $30 million: Most likely you will need three loan producers, two SBA credit analyst, 1 to 2 loan processors/closers and one loan portfolio servicer. You will also need one of the above people to be in charge of all SBA lending (a division manager).

$30 million and above: As you grow your lending, the worst thing you can do is to be understaffed and allow the credit approval and/or loan closing to drag out to extended time periods. This means understanding how many credit and how many closers are needed for specific levels of production. A lot of this has to do with the average size of the loans you want to do.

I would love to give you average pay for each position, but that has a lot to do with availability of experienced SBA staff in your market. What you pay for a credit analyst in Oklahoma City vs Atlanta, GA as an example, can be very different. My best advice is to work alongside an SBA consultant who can give you valued advice on staffing and save you a lot of money.

I spend time every month talking with lenders, helping them design their SBA lending program. Very seldom is there a financial charge for talking through this important issue. So when you are ready, let’s talk.

“The Top 5 Requirements to Starting or Expanding an SBA Lending Platform” written by Tim Terry, CEO of SBA Advisors.

Welcome to the SBAadvisors Blog!

Oct.

20^th

The Top 5 Requirements to Starting or Expanding an SBA Lending Platform: #2 PLAN, part b

By Tim Terry |

Why Have A Stand-Alone SBA Credit Policy

From the last blog, we discussed having a Plan for SBA lending starting with a stand-alone SBA credit policy. Let’s continue the discussion on the mandate for an SBA Credit Policy.

First and foremost, it is important to understand that the SBA credit policy forms the foundation for your SBA lending program.

SBA requires it.

Regulators will want to see it.

It tells the BDO what types of deals and industries you are willing to consider and possibly those type of loans that you know you will never consider.

It says where (geographically) you want to lend. This is very important in maintaining and improving your CRA.

It will outline collateral requirements along with maximum loan amortizations and maximum pricing.

Let’s not forget the importance of establishing SBA loan minimum debt coverages and how that is to be calculated.

And you simply cannot meet the SBA compliance requirements if you do not cover the critical aspects of SBA credit that could cause the loan’s government guarantee to be jeopardized. In fact, the SBA Credit Policy when implemented will ensure SBA compliance.

A good Business Development Officer (BDO) will want to review your credit policy to ensure he can be successful with the type and pricing of generated loan requests. A well written credit policy will actually help in your recruiting efforts.

But having an SBA Credit Policy will not help you establish and grow an SBA lending platform IF your Chief Credit Officer has not approved and shown support for SBA lending. Without the CCO support and encouragement, you will be wasting your time attempting SBA lending.

“The Top 5 Requirements to Starting or Expanding an SBA Lending Platform” written by Tim Terry, CEO of SBA Advisors.

For more on creating an SBA Credit Policy, please contact this author at Tim@SBAadvisors.com