The U.S. Small Business Administration (SBA) has been loaning
money to Americans to start, build and grow businesses since 1953.
However, many business owners may
not realize that these loans do not
require a lengthy approval process or a
long-distance relationship with a faceless loan processor.
Through its Preferred Lender Program
(PLP), the SBA grants some banks the
authority to underwrite and approve
loans for small businesses. And while
borrowers must qualify, SBA loan
authorization can take as little as 24 to
48 hours, which is great news for small
business executives, given the current
lending climate.
“Preferred lenders have full authority
to underwrite and approve government-sponsored SBA loans because they are
charged with looking out for the SBA’s
interest,” says Albert Lee, vice president
of Business Banking for Fifth Third
Bank, Tampa Bay. “SBA loans were
designed to facilitate access to credit for
businesses that might otherwise have
trouble securing funding.”
Smart Business spoke with Lee about
why SBA loans are a viable option for
business owners.
What types of business loans are available
through the SBA?
Business owners can receive funding
to grow or expand their business, including purchasing equipment, property,
making leasehold improvements or just
meeting operating capital requirements
through the SBA’s loan program and
portfolio of loan products. The SBA’s
7(a) loan program, for example, has a
maximum loan amount of $2 million.
Sometimes new companies don’t have a
lot of assets or collateral to borrow
against, so this program was designed to
help those companies succeed.
What are the qualifications?
In some respects, the term ‘small business’ is misleading, because a company
can qualify for one of the SBA loan programs if its after-tax income is less than
$2.5 million or its tangible net worth
doesn’t exceed $7.5 million. There are at
least 1,200 businesses that fit that profile
in the Tampa Bay area. Applicants must
meet the bank’s lending criteria, and
business owners must not be under
indictment or on parole or probation.
Other qualification criteria include loan
size, type of business, use of proceeds
and the availability of funds from other
sources.
Is there a business ownership requirement
for borrowers?
The borrower is required to have a
cash investment stake in the venture.
The SBA has a minimum requirement of
10 percent equity, although the local
bank’s loan requirements take precedent, and those will most likely require
the borrower to have 20 to 25 percent
equity ownership in the business or even
a higher amount.
How does the loan approval process work?
Business owners may apply through
their local bank. A checklist is available
that outlines the necessary documentation borrowers must furnish, and there’s
also an eligibility questionnaire that
helps borrowers gauge their ability to
qualify. After the borrower completes
the application, the local banker underwrites and approves the loan, using the
bank’s lending criteria, and then submits
the package electronically to the SBA.
Authorization is usually issued within 24
to 48 hours, after which the banker will
put together the loan terms for the borrower, including how the funds will be
used. If the business needs to use the
funds for a different purpose down the
line, the banker has the authority to
modify the loan documents to meet the
business need.
How do SBA loans differ from traditional
loans?
In theory, the SBA does not decline
loans based upon a lack of collateral,
whereas traditional loans require the
borrower to demonstrate sufficient cash
flow and collateral and execute personal
guarantees. SBA loans do not necessarily have to be fully collateralized as long
as any and all available collateral has
been offered. The term of the loan is
driven by the use of the proceeds,
although the lending terms can be
stretched to accommodate a longer time
period than most conventional loans.
Historically, SBA loans have been
unfairly characterized as cumbersome,
when, in fact, the SBA loan process has
become very user-friendly. Today’s
process is highly streamlined and banks
have authority to meet the needs of
small business owners without the red
tape.
ALBERT LEE is vice president of Business Banking for Fifth Third Bank, Tampa Bay. Reach him at (813) 306-2414 or
[email protected].
