sba your way - whitepaper th
TRANSCRIPT
THE SBA LENDING PARTNER
How Your Lending Institution Can Take Advantage
of SBA Lending
www.banc-serv.com
SBAWAY
your™
OVERVIEWEntrepreneurs and small business owners are vital to the strength of the U.S. economy. There are almost 28
million small businesses in the US, with over 50% of the working population employed with a small business.
Roughly 60% of debt financing to small businesses is through the help of lending institutions. Most small
businesses rely on conventional lending, personal lending, and outside equity investments for financing options.
One underutilized financing option for small businesses comes through lending programs established by the
Small Business Administration (SBA). SBA loan programs provide an excellent option for access to capital when
additional funding is not available through conventional lending methods. The proceeds from these loans can be
used for many business purposes, provided the small business meets certain eligibility requirements.
The SBA offers a variety of programs structured under 7(a) guidelines to banks, credit unions, and other
specialized lenders. This paper examines the reasons for including an SBA lending program as part of your
institution’s commercial loan portfolio. This paper assesses:
• 3 Biggest Myths of SBA Lending
• Challenges of SBA Lending
• Benefits of SBA Lending
• Finding the Right Partner to Handle SBA Lending
THE SBA LENDING PARTNER
The Small Business Administration (SBA) off ers numerous programs
that provide small businesses with an opportunity to start, manage,
and grow. Despite the tremendous boost SBA loans provide for a
small business, there are still many misconceptions that exist regard-
ing these government guaranteed programs.
3 MYTHS OF SBA LENDING
THE SBA LENDING PARTNER
The SBA is an avenue for lending institutions to extend capital to those
borowwers who are not strong enough to meet the institutions credit policy.
It is a resource and tool for those who are generally missing a small piece of
the eligibility puzzle, a piece that would have allowed them an opportunity to
receive a conventional loan otherwise. Whether it is a lower than average credit
score, a lack of full collateral, or less than perfect cash flow, the SBA can provide
assistance in troubled areas through a set of specially developed guidelines and
regulations. Understanding SBA guidelines, compliance, and regulation comes
with many years of training and dedication to the SBA process.
Borrowers with poor history (i.e., credit) can easily get a loan
3 BIGGEST MYTHS OF SBA LENDING
MYTH 1
THE SBA LENDING PARTNER
Cumbersome and Timely
3 BIGGEST MYTHS OF SBA LENDING
MYTH 2
Many of the SBA loan programs were traditionally associated with lengthy and complex
processing, making them a last resort option for borrowers. Though old perceptions still linger,
the SBA has developed significant changes. Over the years, the SBA has made substantial strides
by reducing redundancy, centralizing itself for consistency, and adding a staff of well trained
individuals. Many of the implemented efficiencies include streamlined forms, revised application
documents and regulations, and internally aligned protocol. Still, nothing plays a more important
role in change than the input and feedback from lenders and borrowers across the country.
THE SBA LENDING PARTNER
More Fees, Less ProfitBorrowers and lenders alike, more often than not, hesitate to travel down the SBA
path due to a misconceived notion that SBA loans are always more expensive for the
borrower and less profitable for the lender. In some cases, that scenario can be true.
However, that is not always the case. Cost of funds, pricing, and loan structure all play a
vital role in determining costs for all involved parties. It is important for lenders to work
through a full cost analysis before making a decision to move forward with an SBA loan.
In certain cases, borrowers can actually save money by rolling fees into the SBA loan.
Additionally, institutions can earn tremendous and immediate profit from selling
guaranteed portfions of SBA loans on the secondary market. Again, each loan is unique
and has its own set of possibilities. Because of this, it is always important to ask an
expert and work through your own analysis.
3 BIGGEST MYTHS OF SBA LENDING
MYTH 3
THE SBA LENDING PARTNER
CHALLENGES OFSBA LENDING
Many lending institutions shy away from taking advantage of the
SBA due to misconceptions. Typically, hesitation stems from an
unfamiliarity with the loan process or from a lack of knowledge
or experience with its programs. Understanding the basic fl ow
of an SBA loan can be a highly important step in taking on such
loans yourself. The following are the biggest challenges to take
into consideration when moving forward with an institution’s SBA
lending program:
• Expertise
• Effi ciency
• Due Diligence
THE SBA LENDING PARTNER
Expertise SBA Guidelines (SOP)
Lenders must have full working knowledge of the SBA’s Standard Operating
Procedures, otherwise known as the SOP. In an ever changing environment,
understanding the SOP guidelines will arm lenders with the expertise needed to
process quality loans more efficiently.
Business and Borrower Eligibility
There are many programs available through the SBA, most of which can help lenders
create a loan that is beneficial for both the borrower and lender. Loan parameters
and borrower requirements vary from program to program. Again, understanding the
SOP will help provide guidance on what is best for your borrower.
Loan Programs and Parameters
It is highly important for lenders to understand each loan program. Not only will
placing the loan within the right program benefit the borrower, it will also provide
your lending institution with the security it requires to ensure your loans reamain in
compliance and your guarantees stay intact.
CHALLENGES OF SBA LENDING
THE SBA LENDING PARTNER
Due DiligenceAn SBA loan is not complete simply becuase it was approved. Nurturing an SBA
loan through maturity is vital to maintaining the loan’s guarantee. It is important to
continually target and analyze items such as personal and business financials; tax
payment verification; life and commercial insurance verification; and debt service
analysis. Though those aren’t the only items to follow up on, they are a great place to
start.
EfficiencyDocumentation
A guarantee is one of the biggest benefits provided by an SBA loan. With the
ability to reduce risk comes the responsibility to document the loan and its process
correctly. It is not enough to simply move a loan through to the final approval stage.
Proper care and documentation should be taken every step of the way—from credit
analysis, packaging, closing, and selling to servicing, reporting, liquidation, and
annual due dillegence.
BENEFITS OF SBA LENDING
Despite the challenges involved with the SBA lending process, there is
tremendous profi tability and growth potential for a lending institution
who chooses to take advantage of SBA progrmas. An institution’s
objectives should ensure that assets are protected (soundness), that
a reasonable return on investment is provided to its shareholders
(profi tability), and that the needs of its community are continually
met (growth). When a lending institution chooses to proceed with
any endeavor, these key business drivers—soundness, profi tability,
and growth—must meet or exceed expectations. The following are the
biggest benefi ts to consider when building an SBA lending platform:
• Reduce Risk
• Increase Growth
• Increase Profi tability
THE SBA LENDING PARTNER
Reduce RiskThe SBA, depending on the program, provides a specific
guarantee on each individual loan, anywhere from 50% to 90%.
This reduced risk provides lenders with additional comfort when
moving forward with loans that otherwise wouldn’t have been
approved through conventional lending. Not only is the reduction
of risk important for the overall health of the institution, it also
allows lenders an opportunity to help support more borrowers in
their community.
BENEFITS OF SBA LENDING
THE SBA LENDING PARTNER
Each loan guaranteedanywhere from
50-90%
Increase GrowthDepending on your governing regulatory authority, a lending institution may
have the ability to record the full loan amount on their balance sheet or just the
unguaranteed portion. With capital requirements such an integral part of an
institution’s lending flexibility, this capability allows institutions the room they
need to increase their loan portfolio and provide additional long-term assistance
to their borrowers.
BENEFITS OF SBA LENDING
THE SBA LENDING PARTNER
The secondary market is one of the most underutilized areas in
the SBA loan process. Though not always the best route, selling
the guaranteed portion of a loan on the secondary market can
be a highly benefi cial profi t center for certain institutions. With
recently recorded premiums as high as 118, there has never been
a better time for lenders to consider taking advantage of reduced
exposure and increased liquidity.
Increase Profi tability (Interest & Secondary Market)
BENEFITS OF SBA LENDING
THE SBA LENDING PARTNER
118Recorded Premiums as High as
FINDING THE RIGHT PARTNER TO HANDLE SBA LENDING
Finding the right partner to handle your SBA loans can be a
challenging and time consuming eff ort. It is important to fi nd
a lender service provider that can provide your institution with
expertise and effi ciency in every aspect of the SBA lending process.
There are four main factors you should take into consideration when
choosing a lender service provider to handle your SBA portfolio:
• Experience
• Flexibility
• Security and Attention to Detail
• Capacity and Capabilities
THE SBA LENDING PARTNER
Experience• How long have they been managing the SBA lending process for other financial institutions?
• How many loans have they packaged, closed and
serviced?
Flexibility • Can they tailor their services to meet your lending objectives and goals?
Security and Attention to Detail• Do they have a complete and tested Due Diligence process established and available?
• Do they carry the maximum E/O insurance?
• Are they regulated by the FFIEC?
• Do they hold an SOC-1 Certification?
• Are they approved for the SBA?
Capacity and Capabilities• What is the extent of SBA lending services they provide? Some Lending Service Providers may act in a consulting role as opposed to actually executing the process (i.e., Packaging and Closing). The following list of services is what a good lending partner should provide:
FINDING THE RIGHT PARTNER TO HANDLE SBA LENDING
THE SBA LENDING PARTNER
4 Factors to Consider WhenChoosing a Lending Partner
• Credit Analysis
• Packaging and Closing Compliance
• Auditing
• Special Assets Management
• Structuring and Eligibility
• Secondary Market Management
• Portfolio Compliance and Servicing
SUMMARY
ABOUT BANC-SERVbanc-serv can become your SBA back office, instantly providing your institution with the expertise needed
to complete all aspects of the lending process. We have the ability to handle any path a loan may take. Any
particular model that we develop can be customized to your specific needs. Our experience and expertise enable
us to understand how to best move a loan through the SBA process as efficiently as possible.
Make the SBA your way today. Call 866-423-9503.banc-serv PARTNERS LLC | 777 E Main St, Westfield, IN 46074
“The SBA Lending Partner” may be a bold statement, but it is something that we can proudly back up. In
business as a Lender Service Provider (LSP) for over 14 years, banc-serv boasts an in-house staff of 40+
employees that work with 300+ institutions nationwide.
As we continue to grow and develop, we always seek to make the SBA program understandable, accessible, and
profitable because we have a passion for lending institutions and small businesses alike.
SBA lending programs can be a viable option for any lending institution and are underutilized financing options
for small businesses who need access to additional funding. Even though there are challenges involved with
the SBA lending process, there is tremendous profitability and growth potential for a lending institution who
chooses to take advantage of SBA programs. Whether an institution chooses to handle SBA lending internally
or outsource to an SBA lender service provider, it is vital to have expertise and efficiency in every aspect of the
process. Ensuring a lender service provider has experience, security, and flexibility will increase its probability of
adding greater volume and profitability to its current lending portfolio.
THE SBA LENDING PARTNER
© 2016 banc-serv PARTNERS LLC. All rights reserved.
Tucker HerringExecutive Vice President - National Sales Managero: [email protected]