Developing a Strategy Around SBA Lending-Part 2
– J. M. Chuck Evans, President, Capital Growth Solutions
One of the next important issues that we have as bankers is how to manage the risk of SBA lending. Historically most lenders focus on all five “c’s” of credit, yet when an SBA project is presented, it is almost always going to be an undercollateralized project with good cash flow or based upon projections. Almost all SBA lenders want real estate as collateral but there are other opportunities such as business acquisition that can prove to be “good” SBA projects. You must consider the level of goodwill you and your team are comfortable with, and once that is decided, there are several financing opportunities available.
If you look at the monthly data provided to us by the SBA it shows approvals ytd from each lender in each market. You can see different types of strategies. You have the lender that uses the program as “the loan of last resort” and uses the guaranty when a current borrower needs financing. This is the safest path and what the program is designed for. Credit elsewhere tests are becoming a focus in the SBA risk based reviews today.
If you enjoy a robust C&I lending team or even a branch network that has some experience in small business lending, you can grow your SBA portfolio organically. We encourage lenders to first develop an efficient process (or your loan officers will not buy into SBA lending), set some realistic goals and even provide some incentives. This is, again, a very good path to having a successful SBA program.