SBA loans can be an impactful resource for your small business, but you may find yourself wondering how to choose an SBA lender. SBA loans often get a bad reputation because they have extra paperwork involved and specific requirements that lenders must follow in order to protect the guaranty offered by the program. Above all, this can often be a source of frustration for borrowers seeking an SBA loan. However, doing a little homework and asking the right questions of lenders can make the SBA process easier. The first consideration is a lender’s status with SBA.
One of the most important factors in choosing the right SBA lender is whether they are a delegated or non-delegated lender.
So, what is the difference?
A non-delegated lender with SBA can utilize the program, but cannot approve a loan transaction under their own authority. These loans must be packaged up and sent to the SBA processing center for additional review and approval. Loan packages must contain all of the SBA required documentation when submitted. If not, they are “screened out” and returned to the lender until the missing information is provided. Once a loan package is considered complete it will be reviewed by an SBA underwriter. Any questions or concerns are sent to the lender for response and a decision will be made. This can add quite a bit of time to the loan process.
Comparatively, a delegated or Preferred Lender (PLP) with SBA can approve most transactions on behalf of the SBA, thus skipping the submission and approval process with SBA. This also allows flexibility to the lender on their process and timing. An example would be a commercial real estate purchase loan. With delegated authority the lender could approve the loan pending an appraisal that meets the loan requirements. When submitting that same loan to SBA the appraisal is required as part of the submission package. This means the timeline will be extended based on how long it takes to receive an appraisal. Delegated authority allows the lender to better control the timing of each step in the process.
When executed well, a delegated authority loan should take less time and can mirror the timing of a non-SBA loan. This takes having a team dedicated to SBA within a lender that has the training and expertise necessary to successfully process a transaction. When shopping for an SBA loan, it is wise to ask about the lender’s status with SBA and their level of expertise with the program.
At Community First Bank of Indiana, we’ve been a Preferred Lender with the SBA since our founding in 2003. You can feel confident working with our team as we share our 30+ years of industry experience with a specialty in delivering the U.S. Small Business Administration (SBA) programs to small businesses.
