What to Look for in an SBA Lender
By: Miranda Kelly, VP Business Banking, SunTrust Bank
You’re buying a business, unless you have the cash to buy it yourself, most likely your next step is to find an SBA lender to help you; but what do you look for in a lender? Finding the right lender is a personal decision for each business owner, but here is a list of items that you should consider before you decide to partner with one, on the success of your business.
At the Bank level:
Is the bank part of the SBA Preferred Lender Program (PLP)?
SBA lenders use the Preferred Lenders Program (PLP), and its delegated authority to process, close, and service most SBA guaranteed loans without prior SBA review. This can be critical to your success for a few reasons: you are working with the most experienced banks who have closed many similar acquisition loans, you will save time because your loan will not have to be sent to an SBA Regional Office, and they generally work with the same underwriters and have learned what to look for at the start of your acquisition process to streamline your experience. From submission of the loan to the closing an average timeline is about 6-8 weeks when real estate is involved.
If there is real estate involved, does the lender offer a long term fixed rate?
Most PLP lenders will offer a long term blended fixed rate for loans that include real estate, which will allow you to lock in what is most likely your largest expense for a significant timeframe. This will allow you to build better projections for the successful growth of our company. If they don’t offer a long term fixed rate, you are taking on the rate risk yourself (this year we have already had 2 rate increases with more expected by year end).
Will the bank retain your loan and manage your entire banking relationship, or do they sell the loans to other third parties?
For some owners this may not be important, but for some they want to know that the person they are working with is invested in helping them for more than just this acquisition. This can be especially frustrating, if you have questions about it later and it was sold to a company in another state, and you just have an 800 number to reach them.
At the Lender level:
How many SBA loans has this lender done, and have they done one like yours?
Although a Bank may be part of the PLP program if the lender you are working with isn’t experienced in SBA lending your experience can be rocky. Sometimes they don’t know what to look for on the front end to help you overcome routine concerns from an underwriter.
Does the lender have trusted local advisors that can help you with your due diligence?
Using a lender that has trusted professional resources for you to engage, to help you perform your due diligence, can save you hundreds or thousands of dollars in the long run. Examples of such services: CPA’s for inventory, financial, and process audits, commercial building inspectors, and IT reviews of equipment and software. Generally once you close on your SBA loan, a bank won’t do any additional lending until after you have one full year of tax returns under your belt. So if you find out after closing that the computer system was on its last legs and/or you need a new software system, you may be out of luck; however if you learn about it in the due diligence phase you can ask for working capital to purchase it in your acquisition loan amount.
I wish you luck on your business acquisition! I hope I have given you some things to think about as you move towards your dream of becoming a new business owner. For any questions, please reach me at 813-727-9084 or at firstname.lastname@example.org. I have been with SunTrust for over 5 years, and helping business owners in Tampa Bay for 20 years.Read More