Everything You Always Wanted to Know About SBA Loans but Didn’t Know Who to Ask
An experienced SBA lender will first determine what the needs are and then provide options on which SBA loan program would work best given a particular situation.
There are a myriad of reasons small businesses require financing to expand, such as short-term or long-term working capital, purchasing equipment, remodeling a current location or building a new location. The Small Business Administration (SBA) loans have become a critical part of lending to small businesses because loans can be financed with as little as 10 percent equity, and collateral requirements are typically less stringent than conventional financing.
SBA loans have grown considerably in the past 10 years, increasing from $84.5 billion in 2007, to $124 billion at the end of 2016, according to the SBA. Businesses located in Florida alone received nearly $1.9 billion in loan funds through SBA during 2016. The mission statement of the SBA is to maintain and strengthen the nation’s economy by enabling the establishment and vitality of small businesses and assist in the economic recovery of communities in disaster.
When a borrower has determined an SBA loan may be right for his or her company, the following designations are important in searching for a lender:
CLP Lender — This indicates the lender has the Certified Lenders Program designation. This is important because it shows the lender has proven an ability to underwrite loans consistent with SBA standards and procedures. To reward banks meeting this criteria, the SBA allows its loan applications a guaranteed review within 48 hours. Banks that do not have this designation must submit the loan to SBA underwriters first to determine eligibility and obtain approval, which usually takes five-ten business days.
PLP Lender — This indicates the lender has the Preferred Lenders Program designation, which is the highest designation awarded by the SBA. It allows lenders designated authority to approve their SBA loans without borrowers having to wait for an approval by the SBA.
SBA Express Lender — This indicates the lender has the Express Lenders Program designation, which allows lenders to use their own forms and procedures. This helps the borrower receive an accelerated turnaround time for SBA review.
The following are the three most popular SBA programs:
SBA 7(a) loan — This is the largest and most versatile of the SBA’s programs. Loans can total up to $5 million and can be used for a number of purposes including working capital, real estate purchases, equipment purchases and business acquisition. The SBA allows the borrower to put down as little as 10 percent as a down payment.
SBA 504 loan — This is the second most popular program through the SBA. Loans can total up to $5.5 million and are primarily used to finance commercial real estate. Under this scenario, the bank provides 50 percent of the loan amount, using a first mortgage as collateral. The government-backed bonds sold to investors provide 40 percent of the loan amount, using a second mortgage as collateral and leaving a minimum of only a 10 percent equity injection required from the borrower. The bank loan carries a conventional interest rate and term, while the bond rate is typically at a lower rate and fixed for 20 years. These two rates blended together provide a lower interest rate than conventional financing.
SBA Express — This program is used to finance working capital for small businesses. The maximum loan amount is $350,000. This loan will typically have an interest-only draw period on a line of credit for one-two years, then the balance is termed out over a five-year period (total term must be seven years).
Although the SBA process can seem daunting, there are banks such as Fidelity Bank of Florida that deal with SBA loans frequently and have the CLP and PLP prerequisite certifications that allow for a much smoother transaction. A call to a lender may get questions such as, “Have you completed the 919 form or 4506-T yet?” or “Which program are you inquiring about, the 7(a) or 504?”
An experienced SBA lender will first determine what the needs are and then provide options on which SBA loan program would work best given a particular situation. Look for CLP, PLP and SBA Express designations when dealing with an SBA professional to ensure they have the experience and knowledge to help your small business with your next loan.
Additional information on all SBA loans can be found at www.SBA.gov.
For personalized assistance please contact your local SBA Certified & Preferred Lender at Fidelity Bank of Florida.
Robert Good is the Senior Vice President and Chief Lending Officer of Fidelity Bank of Florida.
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