SBA Lending—For the Love of the Program

Most community bankers I talk to are not excited about doing an SBA loan.   I however, am very passionate about SBA lending and enjoy the challenges that come with such a specialized program.  I have been doing SBA Lending for nearly 15 years now.  I started straight out of college working for a bank that was creating a dedicated SBA Department.  As a small community bank in the upper Midwest, we didn’t have a lot of local experts.  I saw this as challenge to learn, grow and become the experienced professional this community needed.  Because my job entailed nothing but SBA loans, I learned to love the program and the challenges that came with it.  I was used to having a pipeline of 10-20 SBA loans at any given time and closing around 5 a month.  Having touched more than 500 SBA loans in my time, to me SBA Lending can be  as simple as a conventional loan.   Lenders that are  diligent and follow prudent lending practices, should be able to easily incorporate SBA lending into their product mix. 

If you’re interested in SBA lending, make sure you know what the program is really all about.  If you don’t have the expertise in house, think about developing a relationship with a qualified service provider or outsource the process.  Having someone that can help you through the process and make sure things are done in accordance with the program requirements increases your chances that the SBA guaranty will provide you the coverage you expect. 

Part of our services  are to review SBA portfolio’s for lenders.  This can be a great training tool to help you understand areas that staff may need more training or assistance in.  It will also help you better analyze the risk of your portfolio by knowing if the SBA guaranty will provide the recovery you expect. If there are deficiencies in your loan files, now is the time to learn about and correct those issues.  Once a loan goes into default, it will be harder to get the borrower to cooperate and assist you in correcting any areas of concern.  Since many SBA loans are under collateralized, its important that the SBA guaranty provide the recovery expected.  It’s not uncommon for us to see costly mistakes in loan files of lenders that do very little SBA lending.  This doesn’t have to be the case, resources are available to assist you in getting them done right.

SBA programs are wonderful, but knowledge of their requirements are important to avoid costly mistakes.  So it’s important to have a knowledgeable member on your team.  Give us a call today.

By: Kimberly Lahr

SBA Express Loan Tip

When the SBAExpress program was introduced in 2000, it was a pilot program and had its own program guide.  Late 2004 the program was established as a permanent program. The rules of the program have since been incorporated into the SOP 50 10.  Lenders should avoid referring back to the original Program Guide as some of the rules may have changed. 

Some lenders think of this program as a simple way to get an SBA guaranty without all the hassle.  While this is somewhat true, lenders need to realize they are not conventional loans and specific forms and guidelines still need to be followed.   SBAExpress loans can be submitted using E-Tran, SBA’s online application. Although this application process eliminates the paperwork for SBA, it does not eliminate the requirement for the lender to have signed and in their file the required forms.  These forms include Nos. 1919, 1920 Parts A  B & C or Form 2238. Lenders must prepare the SBAExpress Loan Authorization themselves, this is not generated by SBA upon loan approval.  All these forms can be found on the SBA Lender website.

If you don’t want to handle the processing of the forms yourself give us a call. 

SBA Lending Basics

SBA Lending shouldn’t be a daunting task that is looked down upon by lenders.  While SBA lending may require discipline, commitment and dedication, it should not be feared, rather embraced as a profitable tool to any bank.  Don’t let past experiences or other lender’s stories deter you from being part of a positive SBA experience.  Having the right people and tools in place are a crucial part of successful SBA lending.

SBA loans can be a profitable lending tool within your bank. Doing it right allows you to mitigate risk and free up capital to lend to other borrowers.

SBA Loans provide borrowers the benefit of more flexible terms, like a longer maturity and/or lower down payment.

If you are interested in SBA lending, it is important to familiarize yourself with the SBA’s Standard Operating Procedures (SOP).  There are 4 primary SOP’s that guide you through an SBA loan cycle. 

The SOP 50 10 covers Eligibility, Terms, Fees, Loan Requirements for various loans, Closing, and Funding.  It also has a special section dedicated to the SBA 504 program.  For those of us well diverse in SBA programs, we have many notes and areas marked throughout our SOP’s. This SOP has been re-written in prior years to be more user friendly to lenders. 

The SOP 50 11 covers underwriting of an SBA loan.  Although this manual is from the early years, it still provides helpful information into the underwriting world. There are some summary guides that have been given a more modern look, which makes for a bit more easy reading.

The SOP 50 50 covers servicing your SBA loans.  It give lenders guidance on how to handle various serving scenarios that may come about during the life of the loan. Though this SOP was written for SBA district offices, we are hopeful SBA will re-write this to be more user friendly for lenders in the near future.

The SOP 50 51 covers Liquidation and Workout.  This SOP too has recently been re-written to read better for lenders. It provides guidance as lenders go through the process toward a guaranty purchase request.

Each of these SOP’s are available on the SBA website in a PDF format. You can click here for direct web access to the SOP’s through SBA’s website.  

Two other tools every lender should use in the SBA lending process is the SBA Application Checklist  and the SBA Eligibility Checklist.

These two checklists are not meant to be a substitute for the information covered in the SOP 50 10.  It is important to note that these are tools to be used in conjunction with the SOP 50 10.  Please be sure to refer to the SOP’s for detailed information on specific lending scenarios. 

We understand that not all lenders have time to read through this material and keep up with changes.  If you don’t have someone on staff to do this, we are here to help.  We work only when you need us and offer our services at a fraction of having a full-time on-staff expert.  

Outsource Solution

Community Banks have outsourced a variety of their services for many years.  SBA lending too can be outsourced.  We at sbaSTRATEGIES can help take your lending to the next level with services in loan packaging, closing & funding, servicing and request for guaranty.  We also help with training staff, file review and development of SBA policies and procedures.  Isn’t it time you get an experienced professional on your side, increasing your chances of turning a profit instead of a disappointing loss.  Give us a call today to find out how we can fit into your business model.  We’ll bring you ease and  piece of mind from beginning to end of the SBA lending process.