Our A/C broke back in May, which in the balmy Texas summer is, well, unpleasant to say the least. To their credit, the HVAC guys (Zach and Jose) showed up quickly and addressed the issue, which turned out to be an overloaded old breaker. Growing up, I spent most of my summers and breaks with my grandfather who was an electrician, and I am actually good with my hands and generally understand how things work. But A/C eludes me. I chatted up the guys: “How hard is your job?” Their prophetic response: “It’s not hard, but you gotta know what you are doing.”
It struck a chord.
I’ve been travelling a lot these past six months, meeting with and presenting to potential borrowers, brokers, bankers, and many of the intermediaries we work with to get loans in the pipeline and, ultimately, closed. The content of my presentation is straight forward: (a) who we are, (b) what we do, (c) how we can help, and (d) Q&A. The presentation, however, evolved over those months and now the Q&A section takes up the majority of the time. It turns out there are many questions and misconceptions about the SBA program, specifically the SBA 7(a), and the most effective use of our time is addressing those. And since May I begin each presentation with “It’s not hard, but you gotta know what you are doing.”
Here are the top three comments/questions that come up and a very quick summary of my answers, which, by the way, are very specific to how wedo SBA loans and may not apply to other lenders.
“It takes forever to close an SBA loan.” It shouldn’t. We typically close a 10-year loan inside four weeks, a real estate one a little longer, from the time we have a full package. Getting the package to the “full” status is driven in large part by our team, but we can’t do it without the borrower. Borrowers are provided a checklist as soon as they return our LOI and we collaborate diligently with them and their accountant (if applicable) as well as the broker to get the documents in as soon as possible. Once a package is complete, it is submitted to one of our underwriters who completes a comprehensive analysis in just a few days, interacting with the borrower when questions arise. The underwriter then submits a recommendation to our internal team (we, meaning me + one or two other divisional teammates, have the credit approval authority for upwards of 95% of all deals we see), which convenes daily (frankly one of my favorite activities on any given day!). Once approved, a Commitment Letter is issued and the loan heads to closing. Like borrowers and all deal parties, we want to fund loans as soon as possible while making sure we are doing it the right way for everyone’s protection. A quick pro-tip: one of the items that always appears on our Term Sheet is SBA’s requirement for life insurance. It’s a simple step, but we can’t close a loan without it, so please start (we can help direct you to some terrific providers with knowledge of SBA requirements) on that as soon as practical because it sometimes takes longer than expected.
“SBA loans are really complicated.” Absolutely true. Yet, tens of thousands of business owners take advantage of the programs annually and consume in excess of $40 billion in loan proceeds to acquire and refinance businesses, to invest in equipment and real estate and to start new ventures. The key is to work with the right lender: one with a track record of closing many SBA loans, ideally complicated ones, and one with dedicated in-house credit, closing, and servicing staff. One with years of specific SBA industry experience. If you work with a broker, your first question when she or he presents potential lenders should be “have you closed loans with them before?” And when you get on the phone with the prospective lender for the first time, interview them to make sure there is a fit and they have the experience and track-record with their current bank. I truly can’t understate the importance of this.
“All SBA lenders are the same, and I will choose the one with the lowest rate.” In some (rare) instances, that’s true as well, but in 99% of the cases, the lowest rate presented on a term sheet is just one (and not the most important) factor a borrower needs to consider when deciding who the right lender is. The range you will see on any one loan is +/- 1% or less. Would you pick your surgeon based on whether the co-pay is $100 or $120? As stated earlier, dig into the experience of the lender and their track record closing SBA loans. The broker, if you use one, is indispensable in determining that, as well as your own level of comfort with the banker you speak with. Ask around, it is an important decision.
Circling back to what my A/C guys said, with a twist: “It’s not hard, but your banker has gotta know what they are doing.”
If you have a question or a comment about anything here, or if you want to run a deal by us, drop me a message or reach out to one of our BDOs. You’ll find their contact information here: https://gulfcoastsba.com/our-people/. We have the experience, we know what we’re doing, and we are finding a way to say YES!