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Ok, first things first. The SBA does NOT make direct loans when it comes to SBA 7a loans. (Note: They do make direct loans called disaster loans, but those are not for the same purposes as most 7a loans). The SBA, in an effort to get lenders to lend to small businesses, simply guarantees repayment of a portion of the loan to the lender. For example, if a borrower wants to borrow $200,000 from Super Bank to open a “Seriously, Another Yogurt Shop?” franchise but doesn’t have any collateral, Super Bank will usually turn them down because if the business fails, there will be no way to get their money back. This is where the SBA comes in. They offer Super Bank a deal. If they are willing to underwrite, document, and fund the loan, the SBA will reimburse them for 75% of the loan amount if the Yogurt Franchise fails. Here is a really important distinction that I need to make here. The guarantee reimburses the bank but has no impact on the amount owed by the borrower. I’m going bold and underline that last part: the SBA guarantee has no impact on the amount owed by the borrower. If you borrow the money, there is no bailout for you, the borrower.
Now that that part is out of the way, let’s talk about where to get an SBA loan. It’s not hard to find SBA lenders. There are tons of them just google it. If you do take an SBA loan, you should consider taking a loan from a Preferred SBA Lender. While many banks tout this as the big reason to take an SBA loan from them, the truth is that there are hundreds of Preferred SBA Lenders out there, so that alone isn’t a reason to borrow from them. With that said, being an SBA preferred lender does mean that the bank can many many decision on their own, which speeds up the underwriting and closing process. It doesn’t guarantee an approval or anything like that. It simply makes the process easier. Like I said earlier, there are tons of preferred SBA lenders out there, so when choosing an SBA lender for a client, I always want the following characteristics to exist:
1) No points upfront Unless you are in an industry that is tough to lender to, like gas stations, most lenders can pretty much all offer the same products in the same amount of time. I find claims of faster approvals and closings to be nothing more than marketing gimmicks. First and foremost, banks want to protect their money, which means thorough due diligence will always come ahead a speed. Nothing is more annoying than paying good money for faster service, only to find out that you could have gotten the same thing for free.
2) Lots of SBA Lending Experience – Just because a lender is a Preferred SBA lender, it doesn’t necessarily mean that they make a lot of SBA loans. My lenders are generally in the top 15 every year of top SBA 7a lenders in the nation. It means that they have the personnel and processes in place that other lenders don’t. If a bank does 95% non-SBA loans, do you think they will be more or less adept at the process? Of course, it’s usually the latter.
3) Fair Workout Process – This is an obscure criteria that no other commercial loan broker will mention. SBA loan, by definition, are loans that banks want to give unless the SBA is willing to guarantee a large portion. Since my other consulting businesses exclusively focuses on SBA workouts and Settlements, I’ve with with hundreds of clients and their banks on settlements, so I know of some lenders that are good to work with, and others to avoid like the plague.
Jason Milleisen can answer your questions about applying and being approved for an SBA loan. Feel free to call (toll free 1-877-436-4533) or email me (firstname.lastname@example.org). If you retain me to help you with your financing needs, I’ll give you a rebate after your loan closes equal to 10% of my commission, up to $500.