Why SBA Loans are Popular with Entrepreneurs and Lenders
By Tim Burton
Years ago, the Small Business Administration didn't have the best reputation with entrepreneurs, small -business owners or lenders - primarily because, back then, the SBA was bureaucracy at its worst.
Not any more. Over time, the SBA has shed its bureaucratic ways to become a national engine of growth, supplying much-needed credit to small businesses when they need money to grow. Today, most banks and non-bank lenders are eager to grant SBA-backed loans.
Last year alone, the SBA provided partial guarantees for more than $10 billion in loans to small businesses.
And today, some non-bank lenders (such as Business Lenders, my employer) make SBA loans almost exclusively.
Why are SBA loans so popular today with both entrepreneurs and lenders?
Many small-business loans fall "out of the box," which means they aren't within the normal lending parameters of most banks. But banks and non-bank lenders are eager to make SBA loans because they are partially guaranteed by the SBA.
Why do small-business owners and entrepreneurs like SBA loans? Where else can you get a 25-year loan to buy or renovate a building? Where else can you get a 10-year working-capital loan to expand into new markets? And where else can you get a 15-year loan to buy the new equipment you need to supply new customers? Even better, where else can you get such loans with no prepayment penalty, no balloons, no call provisions and no credit scoring?
There's more. The days of an SBA which frustrated small-business owners with reams of pointless paperwork and endless delays only to reject the loan are gone. Also gone are the days when a loan applicant needed loan-rejection letters from three banks before they could even apply for an SBA loan.
Today's SBA is run by professionals who know that their goal is 1) to make the loan application process as quick and painless as possible; and 2) to approve loans whenever possible, not find reasons to reject them.
Today, lenders who work through the SBA can now qualify for preferred-lender status, which means they get loans approved even faster. The SBA regularly audits these preferred lenders to assure that they meet all the requirements of that special status.
Some people think that the SBA still provides the money for SBA loans; today, the lenders provide the capital and the SBA provides a partial guarantee in case of default.
The SBA also encourages lenders to submit loans for start-up companies, for environmentally challenged industries, for companies emerging from tough times but ready to soar again, and for people with limited collateral but with good or rehabilitated credit - and a dream.
One final note: entrepreneurs and small businesses deserve much of the credit for the healthy and growing business climate in this country, since they are responsible for most of the new jobs created in this decade. The SBA, through its enlightened leadership and guidance, helped finance many of those new businesses. The SBA, really, is government at its best.
Mr. Burton is vice president of Business Lenders and is based in Scottsdale, Arizona.
