I often get asked this question, especially lately as the stock market has improved and there is a general media perception that everything is better, hence, credit should be easier. So why does it still seem SBA lending criteria is so tight?
To understand the dynamic, you need to understand that banks are under incredible scrutiny right now. Because so many are failing, the government feels the need to step up enforcement and that is understandable. They are looking particularly at what the bank’s debt levels are compared to their asset levels. So banks are very wary of the amount of debts they extend verses the amount of money they have on deposit. In other words, the fear of extending too much credit is greater than the need to put the depositor’s money to work (which is the main source of profits typically for a bank).
They would rather be safe and post less profit than highly profitable but potentially overextended. And with commercial delinquencies on the rise, I can’t blame them either. So we have a catch-22. The government wants banks to lend, but they need to police them harder on their sba loan process, which makes the bank more cautious in lending, and so the cycle goes.
This is where using an experienced commercial broker can help. We have access to lenders who are not banks, and they are more aggressive. We have access to small local banks in other areas that are expanding their lending nationally. You would not know about them in the local marketplace.
We also have a wide range of funding sources that look for certain things. SO one lender really focuses on experience, another really focuses on assets, and based on the strength of our borrower, we will put them with the lending source most likely to approve them. And usually, there is NO EXTRA COST for using me.
Now don’t get me wrong, I can not get bad files approved, I am no magician. The borrower and the deal needs to be viable, but there is a big difference in the way an underwriter looks at a file when the main goal is to approve a loan verses the main goal being to avoid risk. That is the key difference. And our rates and terms will typically meet or beat a local bank. So there is no downside to using us. More approvals, more closings, and much happier referrals.
by Brian Peart