SBA Financing and LSPs: How Banks Grow SBA Clientele through Alternative Lending

Every day across America, lenders – and for some deals, their alternative lending partners, too – make magic happen when they offer financing options available through the U.S. Small Business Administration (SBA):

• A rundown convenience store is revitalized as an essential neighborhood market
• An abandoned building becomes a bright and busy coffee shop and café
• An empty storefront becomes a cutting-edge salon that brings beauty, confidence and jobs to people in a community

In this overview for commercial lenders, you’ll find insight into the benefits of offering SBA-backed financing options to your small business clients. In addition, you’ll learn about how working with an experienced lender service provider (LSP) makes the entire process easier for you and more effective for your financial institution.

SBA financing: The financial power that builds communities

One of the hardest things to tell your small business clients is “no,” but as a lending organization, you know the reality: Many small business clients simply don’t have the credit histories, equity, collateral or other qualifying criteria to be approved for conventional business loans.

Still, without financing options that help borrowers get the funds they need (and with terms that make it easier for them to pay back their loans), many small businesses won’t have the opportunity to launch, grow and/or contribute to their communities.

There’s a better solution: SBA financing options that help you say “yes” more often. Products like SBA 7(a) and Community Advantage loans and SBA 504 deals can help you keep the door open for entrepreneurs who have great ideas and plans, but who don’t meet the typical requirements for a commercial loan.

Thousands of small business owners who otherwise may have trouble getting funded are approved for SBA loans every year, with down payments of as little as 10% for most projects, flexible approval criteria and reasonable collateral requirements.

Making SBA loans is the smart way to build your small business portfolio while reducing the risks to your institution.

Benefits for financial institutions

Small business owners who are aren’t able to qualify for conventional small business loans – or who don’t even apply because they fear they won’t qualify – often turn to riskier loan options.

Don’t let that happen to your clients. Instead, when you offer financing options like SBA loans to your harder-to-fund small business clients, your institution:

• Becomes part of the solution to your clients’ challenges, helping you to retain business for the long term, including your deposit relationships
• Builds customer loyalty and trust
• Lays the groundwork for future business, because successful borrowers will eventually qualify for conventional commercial loans as their businesses grow

The risks that lenders take when funding small businesses are reduced when your clients are offered SBA options, too, because the SBA guarantees a percentage of every loan it approves.

Examples of the types of SBA financing lenders can offer

When it comes to clients who need small business loans but who don’t quite meet your lending criteria, SBA financing options can fill the gap. These programs help entrepreneurs strengthen their businesses and make them more competitive within their industries and communities.

Examples of the kinds of loans your institution can offer include:

• SBA 7(a) loans, which are the SBA’s most popular loan product. Banks and other qualified financial institutions can offer these independently of alternative lending partners. With loans offered between $50,000 and $5 million, reasonable interest rates (negotiated between lenders and borrowers), flexible uses and advantageous repayment terms, these loans are attractive to borrowers and easier to pay back responsibly. Great candidates for SBA 7(a) loans include early-stage and growing businesses that have:

• • Positive historic or projected cash flows
  • Available equity to contribute to the business (typically no more than 10% of the project cost, and in some case zero)
  • Business assets or real estate to pledge as collateral
  • Fair-to-good personal credit scores

• SBA Community Advantage (CA) loans, which are a special type of 7(a) loan that’s targeted to businesses working in underserved communities (as identified by the SBA). As with all SBA 7(a) loans, banks can make these loans directly to your eligible small business clients. Loans are available between $25,000 and $250,000 and to encourage borrowing, these loans don’t require collateral. In addition to the same kinds of criteria listed above for SBA 7(a) candidates, SBA CA candidates must meet the underserved-community criteria.

Lender service providers, like Prudent Lenders, make SBA 7(a) lending easier

Lender service providers (LSPs), like Prudent Lenders, exist to make it easier for your institution to offer SBA 7(a) loans directly to your small business clients. We take care of the nuts-and-bolts of the SBA process, from your first meeting with a small business client through closing out a loan after the very last repayment and everything in between.

Our services include, but aren’t limited to:

• Our proprietary Fast Track Assessment tool, which helps you and your clients quickly assess whether they’re eligible candidates for SBA 7(a) loans before either you or your clients spend a lot of time and resources on the process
• Guidance throughout the application and underwriting processes to ensure that the SBA’s 7(a) documentation requirements are met at each step
• Closing assistance, so that deals stay on track and SBA guarantees to lenders are upheld
• Servicing, so that SBA requirements are met throughout the life of each loan, keeping your bank in compliance while alleviating the time and resources needed to have your own, in-house SBA team

Learn more about SBA financing, loan servicing and Prudent Lenders

As an experienced and leading lender service provider, Prudent Lenders makes it easier for banks and other qualified financial institutions to immediately and effectively offer the benefits of SBA 7(a) loans to your small business clients without the high costs, time, experience and other resources that you’d need to staff your own in-house SBA department.

We encourage you to contact Prudent Lenders today to learn more about the ways that we can make it easier to build your small business lending portfolio and strengthen your standing as a trusted resource and proactive small business lender in your community.