Getting the financing to buy a business is a contingency in most business sales. Choosing the right SBA lender can make the difference between getting that financing or not. Many buyers believe that all SBA lenders are about the same. They choose an SBA lender that is located near them or at the bank where they have been banking. This can be a big mistake. There are big differences in SBA lenders. Here are the attributes that you should look for in an SBA lender.
The most important attribute that you should look for is that the lender is an SBA Preferred Lender (PLP) in your state. The local SBA website lists the SBA lenders and shows which are preferred lenders. A PLP can approve your loan without needing to submit it to the SBA. This speeds up the process. A bank needs to be have done a sufficient number of SBA loans and done it well enough to get this status from the SBA. This shows you that you are working with a bank that is a more experienced SBA lender.
In addition to PLP status, you should look into other attributes of the SBA lender. Find out how many SBA loans the lender has done recently and whether they are lending to your type of business. This shows you two things – how experienced they are at doing SBA loans and whether they lend for your type of business. The local SBA office regularly publishes a list of the largest SBA lenders. Keep in mind that SBA lenders are loaning money for more than just business purchases.
You should also keep in mind that while all SBA lenders have to meet the SBA requirements, each one has their own requirements to obtain a loan. Lenders differ in the down payments they require, what types of businesses they will lend to, whether they require collateral and how much, the borrower’s credit score, and other factors. In your initial investigation you should contact more than one SBA lender to see which one is best for your situation.
Another question to ask the lender is where the loan is underwritten. Jennifer Mason, of FTUB, states that this is important “especially if there is real estate. In the Northeast, we have a lot of property that is high priced. . . a lender from a newer area of the country is going to have a tough time with the real estate valuation. . . all of our SBA loans are underwritten at our headquarters in Boston”
In addition to choosing the best SBA lender for you and your situation, you should choose a good SBA loan officer. This is likely to be someone that specializes in SBA loans and has several years of experience in SBA lending. There are a number of benefits to working with an experienced SBA loan officer:
The SBA rules change frequently, typically a couple times a year. A loan officer that specializes in SBA loans should be aware of these rule changes and be sure you and your loan meet them. This is one area in which an experienced SBA lender can assist to make sure the transaction is being structured in a way that meets SBA requirements.
Michelle Orr of Wells Fargo recommends choosing an SBA loan officer “that is responsive to your questions and provides answers in a timely manner. . . a loan officer that goes above and beyond to make the process simpler for you. ie…pre-fill applications and provides a complete list of what is needed for approval.”
Most of our business sales are financed by SBA loans. We know several good SBA lenders. If you are buying one of the businesses we have for sale, ask us for a list of SBA lenders that we have worked with. They meet the criteria in this blog.