A number of you have called me recently about SBA loans and their banks declining files. Many of you aren't aware of the differences betweeen bank SBA lenders and non bank SBA lenders.Thought I'd repost an explanation here...I'd like to highlight some differences in SBA loans and lenders. Most of you have experience with SBA banks. However you should start looking into non-bank lenders for your SBA loans. Non bank SBA lenders are more flexible in their underwriting.
An SBA non-bank lender is a financial institution that does not accept customer deposits. Their sole reason for existing is to lend money to eligible small businesses in their community.On the other hand, a bank is a financial institution that solicits monetary deposits from their customers and in turn loans these funds to other customers such as individuals and businesses seeking capital for a variety of reasons including starting or expanding a business.Banks solicit deposits from their customers for two reasons: Number one to meet the Federal Reserve’s capital reserve requirements to ensure satisfactory liquidity levels and number two because deposited funds in a demand deposit account, or what is commonly referred to as a checking account, are the lowest cost of funds.Government RegulationDue to increased government regulatory oversight it is typically more difficult to qualify for a small business loan from a traditional bank than it is from an SBA non-bank lender.Therefore, seeking capital from an SBA non-bank lender may be to your advantage due to the fact that non-bank lenders typically possess less stringent underwriting guidelines and do not require you to move your deposit relationship to them; which is time consuming and sometimes undesirable if you particularly like your depository institution.
A non bank SBA lender will allow you to collateralize business and personal assets. A SBA bank will need to collateralize commercial property.
Some examples I've seen and done.
I got a guy in Hawaii $350,000 SBA 7A putting a third UCC on his primary residence for collateral as he leased his office and warehouse.
I saw a company get a $2M SBA loan collateralizing all of their $10M equipment in Brazil.
Typically a SBA bank might require 3 years management experience in buying a business where I've seen a non bank lender require only one year experience.
I have approvals require collateralize all of a clients vehicles. I was able to go back to the credit committee/underwriting and have them release the requirement for liens on the vehicles and maintain the same approval.
I have done a lot of these loans and many brokers have reached out to me with their frustration doing SBA loans. Yes you do need to do some financial analysis when reviewing the package. And it helps to have the merchant connect you with their accountant or bookkeeper for documentation needed.