The U.S. Small Business Administration (SBA) defines lender service providers (LSPs) as agents. As agents, we’re tasked in carrying out functions like originating, disbursing, servicing, or liquidating your SBA business loan or loan portfolio. At Prudent Lenders we take care of everything from loan underwriting through servicing.
A successful LSP is your partner. When you become an SBA lender, you expand your product offerings and fortify your relationships with potential and longstanding customers. Affiliating with a lender service provider empowers financial institutions, such as yours, to launch and manage SBA loan programs immediately, effectively, and without any fixed costs.
Here are three ways to unlock the benefits of an LSP partnership:
Create an additional revenue source
Turning away fundable customers is expensive to your bottom line, and saying “no” to a loan request may mean waving goodbye to your customer’s business entirely. Partnering with an LSP to offer SBA loan programs makes it possible to avoid closing the door on small business clients while providing your institution with an additional revenue source.
Ensure SBA compliance
The SBA is regulated by complex rules and regulations. Staying up-to-date on dynamic policy demands considerable time and resources; but a reputable LSP will stay current on the ins-and-outs of the program on your behalf. It’s optimal to utilize a trusted service expert to ensure that your loans stay compliant and your guarantees are maintained—without having to learn all the minutia of SBA procedures.
Reduce SBA lending startup and maintenance costs
Partnering with an LSP like Prudent Lenders allows you to retain a modest staff and avoid the fixed costs and ramp-up period generally necessitated by setting up an in-house SBA department. This means you can start making SBA loans immediately.
Effective partnerships begin with solid communication. Not all LSPs are created the same. To optimize for a transparent and secure partnership, it’s important to speak with potential providers and do preliminary fact-finding about each. When determining whether an LSP is well-suited for you, discover the information on the following data points:
- How long has the LSP been involved in SBA lending?
- What size of portfolio does the LSP service?
- What is the size and robustness of the LSP’s staff, the scope of their work, and their level/s of expertise?
The partnership that exists between a lender and an LSP is contractual—not only because we agree to work together but because, in doing so, we collaboratively service your borrowers’ loans. All LSP contracts include mandatory language required by the SBA. While the SBA doesn’t require LSPs to employ a standardized contract, they review and approve each provider’s template prior to use. Furthermore, the SBA reviews individual contracts once again, after each contract has been fully executed. It’s safe to say: all LSP agreements are dependent upon SBA authorization and approval. Having an LSP who “speaks” the SBA’s language, matters.
For lending institutions that are considering whether or not to offer SBA lending programs, it’s important to face the reality that it’s far cheaper to outsource the back office of SBA expertise than to hire one in-house. In due time, and with consistent volume, this may change with the lender opting to bring the program in-house. In the meantime, as you determine the “how” and “why” of offering SBA loans, you should measure the cost of outsourcing with cost savings.
To attract, hire and retain a talented industry expert is neither easy nor inexpensive. Let’s say you make eight loans during your first calendar year of SBA lending, each at a hypothetical cost of $6,500. Your total expense is $52,000. Now, compare that to the salary of a skilled SBA expert. To find an individual who can underwrite, close and service, and capably follow SBA guidelines to ensure your guarantee stays intact will cost you considerably more than $52,000/year. It’s impossible to find anyone who can fill all those roles at the same time…trust us, we’ve had that job posted for years!
Now, let’s imagine you didn’t make eight loans during your first calendar year. In fact, you only made two. Even if you managed to hire an SBA expert for $52,000/year, both loans would cost you $26,000 each. This is where outsourcing begins to make the most economic sense. Rather than staffing up for uncertain demand, it’s far better to convert a fixed cost to a variable one. In more cases than not, outsourcing is the only way to enter the competitive SBA landscape.
Additional cost savings may be hard to quantify but are worth mentioning. Here’s one example: What does it cost a lender when the financial institution can’t make the loan so a client takes their business elsewhere? Saying “no” to clients is expensive to do. Second: What is the cost of compromising a guarantee by not following the SBA’s rules? Unfortunately, good loans can go bad. This inevitability is why lenders often offer clients an SBA loan rather than a conventional loan. Working with a skilled SBA partner ensures that when a loan goes bad, your SBA guarantee does not.
SBA lending is complex and it takes years to fully understand its regulatory protocols, much less its nuances and network. But, with Prudent Lenders, you gain on-demand access to our proven expertise.
Created by two of the largest and most innovative SBA lenders in the U.S., Prudent Lenders is made up of the 200+ SBA lending experts who will perform loan underwriting, SBA submission and servicing so you don’t have to. With our partnership, we help your institution offer SBA loan programs to the business communities it serves in a prudent manner. So, you can grow your customers, grow your communities, and rest assured your SBA guarantee remains intact. We’re confident SBA lending will naturally fit into your business.