Overview of People in the SBA Lending Process

The Small Business Administration (SBA) is one of the most popular sources and tools for small business owners. Their lending programs, especially the SBA 504 program, makes it possible for all types of small businesses to secure the funds needed to grow the business. It takes a lot of people to successfully secure and close and SBA loan. Knowing who they are and how the work together empowers both lenders and borrowers by helping them identify key partners and opportunities. The following are the key people involved in the SBA lending processes.

The Lender

The lender is the one you go to when you want a loan. Banks, credit unions, and micro-lenders fall under this umbrella. The lender covers 50% of the project cost. By committing to only 50% of the total amount, lenders can participate in larger projects they might not otherwise be able to and assume lower risks with better loan-to-value ratios. They are also allowed to facilitate the loan at their own rates and requirements, making it an attractive situation for them (not just for the borrower).

Certified Development Corporation (CDC)

The CDC is a private, non-profit whose purpose is to promote economic development within its community. The CDC gives out loans for 40% of the project cost (offsetting some of the lenders and borrower’s funding obligation). They work on behalf of the SBA and operate as the direct liaison between the SBA and the other players.

SBA Consultant

A third-party consultant is brought on to facilitate the deal. Usually, the consultant is secured by the borrower and acts on behalf of the borrower’s interest. An SBA Consultant is someone with ties to one or more CDCs and multiple lenders. They bring to the table knowledge of the intricate and ever-evolving process and requirements for qualifying for an SBA loan, a network of lenders and CDCs to help back the loan, and skills in project management and business finance.

The Borrower

The borrower is the small business owner who is seeking the funds to either use it for growth, purchasing real estate, or acquiring other assets. The borrower needs to have a strong borrower profile and credit score to get an SBA loan. To receive a loan, you will need to meet the requirements of the SBA as well as its partners. You need to prove that your business is or will be financially capable of repaying and that you have been a responsible borrower in the past.

To prove that your business is able to repay the loan, you need to submit financial documents from your business and how you plan on using the funds. The SBA and lender will evaluate your credit history and score to prove that you have been a responsible owner in the past. Most eligible borrowers have a score that is at least 600 or higher. If your credit score does not meet that requirement, there are ways you can improve your credit score before you apply.

The Bottom Line

These are just some of the general players in lending. However, depending on the transaction, this might look a little different. If you are acquiring real estate then a real estate agent or broker, inspector, contractor, and other parties will be involved. For equipment and software, a vendor might be involved. Educate yourself on every player and what their roles and functions are. This way you can ensure that they fulfill their duties and execute a smooth transaction.