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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   June 2013

Spot the Differences in SBA Lenders

Select the right lender for your SBA-eligible transactions

Commercial mortgage brokers who have limited experience with loans guaranteed by the U.S. Small Business Administration (SBA) sometimes assemble a loan package that appears to be eligible for SBA financing, approach a lender that advertises SBA financing and think that they’re on a smooth path to the closing table. Many see their deals fall through, however, and are left wondering what went wrong. In these cases, it’s probably the selected SBA lender.

Many lenders who offer SBA loans may not entertain particular property types or businesses even if the business or property type is on the SBA eligibility list. In short, not all SBA lenders do the same scope of business, despite the fact that they adhere to the same guidelines set forth by the SBA.

In reality, it is a lenders’ prerogative to choose not to make an eligible SBA loan. For example, if your clients are seeking an SBA 504 loan, you should find a lender that is willing to make a first lien that will be held in its portfolio at a 50 percent loan-to-value (LTV) ratio, with the remaining LTV — up to 90 percent — done by a certified development company (CDC). In addition, this selected lender should be open to fund the business — gas station, restaurant, hairdresser, etc. — as SBA guidelines allow.

Similarly, just because a lender carries certain SBA-lending designations like “SBA Preferred Lender” or “SBA Certified Lender” doesn’t mean that you can assume this lender will lend on any or all eligible property types and businesses. Lenders take several factors into consideration, including — but not limited to — past performance, rate of failure for a particular business type and potential environmental issues. In addition, many SBA lenders today seek fully collateralized loans, where the value of the real estate and business supports the requested loan amount. Only a few SBA lenders are willing to make under-collateralized SBA loans.

Still, you should be aware of the differences between the two major SBA designations:

  1. SBA Certified Lenders:The SBA Certified Lenders Program includes banks and other lenders that have track records of following SBA procedures and closing SBA-guaranteed loans successfully. These lenders can receive expedited loan turnarounds from the SBA, which makes the final credit and eligibility decisions. The expertise of the lenders’ loan officers helps to make the SBA process faster and more accurate.
  2. SBA Preferred Lenders:These lenders have the highest level of autonomy and authority that the SBA affords to lenders. They are delegated the authority to approve and close loans, and they have certain servicing and liquidation authority, as well. The SBA set up this program to provide expedited service to borrowers who use these lenders. 

Before submitting an SBA loan, commercial mortgage brokers should discuss the deal thoroughly with the bank representative to ensure that they can — and will — lend on that specific property type or business. In some cases, you also may need to find a CDC lender to secure the SBA portion to be financed. By doing your homework before submitting a loan package, you can save yourself and your clients a great deal of time and effort.


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