Five years ago while managing his first company, Tom Smith pursued a Small Business Administration (SBA) loan. His banker at the time encouraged it when Tom was turned down for conventional financing for an equipment purchase. His start-up company was growing quickly, and he needed additional capacity. Unfortunately, his lack of financial history disqualified him for a conventional loan or lease. At the time, Tom’s banker assured him that his lack of financial history would not be an issue with the SBA.
Four months later, Tom realized that he had spent hours on the paperwork and the phone calls back and forth applying for the SBA loan, and still there was no approval in sight. His banker seemed like a client-oriented professional, but the entire process felt a bit like a chaotic scavenger hunt. Tom filled out first one form and then another, submitted what felt like duplicate documentation and answered a seemingly endless flow of additional requests from the banker. In the end, Tom gave up on the SBA loan.
Fast forward to his current company and its financial needs. Tom met with his current banker to discuss financing options for a real estate investment that he wants to make for his recently launched Wholesale Distribution Company. The real estate is a recently foreclosed property that is attractively priced and located in the ideal location for Tom’s company. Tom wants to respond quickly before the property is snatched up by another business.
When Tom’s new banker mentions the SBA 504 program, Tom grimaces. He is reluctant to ever pursue anything with the letters SBA associated with them. His memories of the time-draining experience are still vivid. His banker assures him that different banks deliver different SBA experiences. The banker explains that his team processes dozens of SBA loans every month, and an SBA Specialist will work closely with Tom to make the process as streamlined and efficient as possible. It never occurred to Tom that his last experience was tainted by his former bank’s lack of SBA experience. His current banker explains that the benefits of SBA loan programs are greatly enhanced when you work with a lender who staffs a team of SBA expertise and experience.
Tom could not ignore that the terms were attractive. The SBA 504 does not have nearly the down payment or equity infusion requirements of conventional real estate loans and offers a competitive rate amortized over an attractive 25-year term. Tom decides to move forward, and his banker does not disappoint. The application process is smooth. Tom receives a thorough list of necessary paperwork that the SBA Specialist helps him compile. Sixty days later, the loan closes, and Tom moves his company into the new space.
When considering your lender options for SBA loans, ask the following questions:
- What dedicated resources do you offer for processing SBA applications?
- How many SBA loans (and for how many dollars) has your organization successfully closed in the past 12 months?
- Which SBA programs have you successfully closed in the past year?
- What requirements does your bank add to the SBA parameters for loans?
Taking the time for a few phone calls and a bit of research before going through the application process can ensure you don’t waste your most precious resource, your time as an owner, with an inexperienced lender. From the right bank, today’s SBA loan can be an effective capital source for your business. Take the time to find the right one for you.