Common Roadblocks in Closing SBA LoansBanker Resource
January 11, 2013 — 1,419 views
The SBA or Small Business Administration is an agency that lends support to small businesses and entrepreneurs. The aim of this agency is to strengthen the economy and help small communities recover after undergoing disasters.
A Little About SBA
SBA itself does not loan money, but helps people get loans through credit unions, banks, financial institutions, and private lenders who are partners with the SBA. A guarantee is provided for one part of the loan by the SBA. This guarantee is backed by the government.
The SBA has an established office in every State in America and aids women and other small entrepreneurs with their business ventures. Although being a lender for SBA is common, it does entail a lot of rules that need to be followed.
If SBA lending is where your interests lie, it is vital for you to have support from an expert so that he will help you get the guarantee. A major mistake made by lenders is the inconsistency in underwriting, packaging, and closing process.
The thing that usually goes wrong is that an officer underwrites the loan and an outside SBA packager is hired to create the application, which is then submitted to the SBA for approval. The file finally gets handed over to the note department of the financial institution to prepare loan documents.
Mistakes in the Process
It is important for certain key SBA elements to be included in credit write-ups. It is the responsibility of the bank to point these elements out to the SBA. The packager of the SBA loan may not even notice these issues and may not have read the credit write-up created by the bank. The last step is the most critical.
It is important for you to keep all your loan documentation ready for SBA lending. The main verifications must be performed and the loan should be disbursed as per the regulations and approval of the SBA.
The main challenge is to ensure there is consistency in the oversight of the SBA loan process so that the integrity of the guarantee is ensured.
The risks can be evaded in two ways, by either hiring trained staff of by outsourcing the loan processing to a lender who is approved as a service-provider.
Rules and Guidelines
As a lender, you will have numerous rules to follow while closing SBA loans. Violation of any of these rules could cause problems while trying to close the loan.
Cash Flow Lending
Unlike collateral lenders, SBA lenders are cash flow ones. Getting repaid from the business is a major consideration in the entire loan process. Just like for any lender, in case the cash flow stops, the SBA will look for security behind the loan.
Although agencies do often work in situations where the collateral is thin, a guarantee is required from all the principals. However, the SBA loan companies usually turn down loans if they sense a risk because the SBA was not created in a manner to assume any risks.