Not All SBA Loans or Lenders Are Created Equal
Not All SBA Loans or Lenders Are Created Equal
Understanding the landscape of SBA lending is crucial for small business owners navigating their financing options. The SBA is working to make its lending process more accessible and streamlined, as reflected in their recent updates to standard operating procedures (SOPs). A significant change you’ll notice is the phrase “do what you do,” which appears six times more often in the new SOPs. This shift promotes greater lender autonomy, allowing them to exercise more discretion in key areas and fostering a more dynamic lending environment.
However, this “do what you do” approach can lead to variability in the SBA loans you might receive, depending on the lender. You may find that different lenders offer vastly different terms, even though there’s a baseline of standard policies that the SBA establishes. While the increased autonomy for lenders is generally beneficial, it’s important to remember that not all SBA loans—and lenders—are created equal.
SBA Conveys Greater Trust to Lenders: Do What You Do
The new SOP (50 10 7.1) places more trust in lenders' judgment and expertise. This means that the same phrase, “do what you do,” now holds significant weight in guiding how lenders operate. With this approach, lenders can implement more of their own policies while still adhering to SBA guidelines. While this flexibility is advantageous, it can also create diversity in how SBA loans are structured and approved.
As a small business owner, you might discover that one lender offers a very different SBA loan than another, despite the standard policies in place. It’s essential to recognize that not all lenders will have the same level of expertise or comfort with your specific industry or desired loan amount.
Understanding Your Lender Matters
It's vital to note that the lender—not the SBA—is the one providing your loan. While the SBA guarantees these loans, it doesn't directly issue the funds. Instead, they provide standard procedures, allowing lenders to layer their own policies on top. This means that when you seek an SBA loan, you’re effectively choosing from a range of lenders, each with unique offerings.
Think of SBA lending as akin to electric vehicles. Just as electric vehicles differ significantly from gasoline cars, each SBA lender has distinct approaches and expertise. This diversity mirrors how different medical professionals specialize in various fields. For instance, a podiatrist focuses on foot health, while a cardiologist centers on heart health. Seeking heart advice from a foot specialist wouldn’t make sense, and the same principle applies to choosing your SBA lender.
Every year, many small business owners apply for SBA loans from lenders that may not specialize in their particular business type or loan amount. This often stems from the misconception that all banks operate similarly concerning SBA loans, with the only distinction being interest rates.
Each SBA lender has different levels of experience and comfort with various industries and loan sizes. So, if you're a financial advisor seeking a multi-million dollar SBA loan, it might not be wise to approach a local lender that has never approved loans in your field or for amounts over $500,000. Choosing the wrong lender can lead to wasted time and effort, forcing you to restart the application process elsewhere.
In summary, as you explore SBA loan options, remember to do your homework on lenders and their specialties. This due diligence can make all the difference in securing the right financing for your business.
There Has to Be a Better Way—Now There Is
As a small business owner, navigating the loan application process can be confusing. One of the main reasons for this confusion is that borrowers often lack awareness of the specific criteria that could lead to a denial until they engage with a particular bank. Numerous "make-or-break" factors can impact your application, and if any one of them falls short of a bank’s requirements, you might face a denial. Basic criteria, such as loan amount, purpose, location, and credit score, are typically assessed quickly.
However, more detailed aspects—like loan-to-value (LTV), debt-to-income (DTI), and debt service coverage (DSC) ratios—usually only come into play during the underwriting phase. This means that a business owner who starts the application process with optimism could find out weeks later that their loan cannot be approved, leading to another round of applications at different institutions.
It's also possible for you to be rejected by one SBA lender and then approved by another, which can be perplexing. This inconsistency has long been a challenge in the world of small business bank loans. Fortunately, we have addressed this issue significantly with LoanBox. Now, as a business owner, you can connect with top SBA lenders that fit your specific industry, location, business age, loan amount, purpose, and many other criteria.
LoanBox's algorithms enhance the pre-screening process, matching you with lenders based on detailed underwriting-level insights. Once you complete your loan package, you can instantly see which SBA and conventional lenders perfectly match your criteria. You can select one or several lenders to access your LoanBox package. Interested lenders—typically eager to work with you—will generate loan proposals tailored to your needs. You can then choose the most favorable offer, execute the proposal, and navigate through the underwriting and closing process, receiving alerts as your loan progresses at each stage.
While LoanBox connects you with the right niche lenders for your specific needs, some small business owners prefer the human touch of expert guidance. If that resonates with you, we would love to discuss your loan and share our insights.
This article is authored by Darin Manis, founder of LoanBox.