When small business owners approach you for funding, most aren’t looking for financing through a specific loan product or program. In fact, most would say their primary goal is to obtain capital with reasonable rates and terms. As a lender you act as their guide, steering your borrowers to the loan products that are best for them—whether that be conventional loans to loans guaranteed through the U.S. Small Business Administration (SBA).
In this article, we’re sharing the three most common SBA deal types we see at Prudent Lenders. Keep them in mind as you route loan requests to ensure you’re using the best loan product for you and your small business customer. While there are countless benefits to SBA loan products, it’s as simple as this: we want you to get to a “yes” for your clients more often, more prudently, and more effectively.
When are SBA loans the right option?
As lenders, you may come across deals that are eligible for SBA loan programs more often than you realize.
Clients who don’t fit into your institution’s conventional “credit box” often fall just outside of it. At Prudent Lenders, we call these “but for” loan requests. But for one reason (or maybe two) you’re unable to extend an applicant credit via conventional lending metrics.
Perhaps you have a client who meets most of your criteria but the business lacks collateral to adequately secure a loan. In another case, a longer repayment term – longer than your institution might normally offer – could provide a project the cash-flow adequacy needed to help your institution feel comfortable with the request.
In cases like these, your clients are close to qualifying, but for one (or maybe two) reasons. They barely miss the mark. In these instances, offering SBA loans fits naturally into what your institution is already doing—that is, making good loans—while providing your team another tool to serve your small business clients.
The most common SBA deal types we see
Here are three of the most common deal type we see. Keep an eye out for these deals in your market:
#1 Existing businesses buying real estate to house their operations
When it comes to real estate transactions, the most common “but for” scenario is that the business lacks adequate cash to meet the demands of a conventional loan’s down payment (e.g. 25%).
In these instances, the reduced equity contribution requirements of SBA financing can help a business lock in their occupancy costs through ownership (vs. a lifetime of renting).
#2 Aspiring entrepreneur buying an existing business
In this common scenario, the obvious “but for” circumstance is when a buyer is new and there’s no way to ensure a business will operate consistently or better under their leadership and direction.
The entrepreneur’s lack of experience combined with the lender’s uncertainty regarding the businesses’ future outcomes may be offset by the credit enhancement of SBA financing.
#3 Start-ups, expanding businesses and recovering businesses
The common “but for” scenario here is that the borrower is reliant on financial projections as they cannot demonstrate adequate historical cash flow.
For borrowers like these, and the lenders who serve them, the SBA’s loan guarantee may offer the added protection necessary to feel comfortable approving said loan requests. This enables you to serve existing and new clients.
Keep the door open
When you have clients who are just outside of your eligibility box, consider the SBA’s loan programs: They’re a win-win option for all.
SBA-backed loan products offer a wider variety of loan options, more flexible eligibility and approval criteria. This means more of your small business clients are approved, while your institution receives the consistent assurance of support by way of loan guarantees. It’s important to note that your clients don’t have to receive a formal declination from your institution before you can offer an SBA option. The door to SBA lending can be opened any time you have a client who may be a good fit. And when you’re ready, Prudent Lenders will partner with you and those you serve, every step of the way.
A call to Prudent Lenders is your next step
When you have a client that would benefit from an SBA-backed loan, give Prudent Lenders a call.
Our team of more than 200 SBA specialists takes comprehensive care of loan processing, underwriting, closing and servicing while maintaining continuous and transparent communications with you. We guide every step of the process and do all the heavy lifting for you, so building a strong SBA portfolio doesn’t absorb your team’s time and resources.
We strive to help you grow your small business clientele through strong SBA portfolios while making the process as easy as possible for you and your clients. We look forward to helping you soon!