Once again, the federal government is at risk of a shutdown pending negotiations to reach an agreement on federal spending. This past week the house has passed a bill to temporarily extend funding through November 21, in the hopes of preventing a government shutdown while both parties continue to hammer out a number of details that are under scrutiny. The senate is expected to approve the extension, giving congress another two months to reach an agreement. If a resolution isn’t reached by Thanksgiving, we may see a repeat of last year’s temporary shutdown, which would impact the status of a number of government programs including the SBA guaranty loan programs.
From an SBA Lending perspective, a shutdown largely impacts loans that are submitted for SBA approval and closing. Without an active and open SBA, the cue of loans waiting to be reviewed and approved will accumulate, creating a backlog that can significantly impact timelines for borrowers and lenders. If the SBA is forced to shut down, loans requiring SBA approval or review will be put on hold until the government reopens. At that time, SBA Approved Lender Service Providers and Preferred Lending Partners will enjoy front of the line status when it reopens. That means lenders who are not PLPs or who are not leveraging an LSP like Capital Growth Solutions will see even longer wait times once the submission gates reopen.
For lenders currently working deals, it’s important to communicate expectations to the borrower. A responsive borrower and lender who provide complete and accurate documents in a timely fashion can stay ahead of any looming shutdowns or delays on the government’s side of the process. Lenders can also take advantage of LSPs to help expedite the process and provide expert guidance on how to anticipate and provide for SBA requirements and questions.
Even if a shutdown occurs, LSPs and lenders can do quite a bit to prepare and thoroughly vet a loan package so that it can pass SBA scrutiny and quickly move toward closing. LSPs are trained to know and anticipate SBA concerns and red flag items ahead of time so that the lender and borrower can properly address those items. LSPs also help with determining eligibility and the proper structure of a loan—two items which often cause hiccups for lenders who do not have a dedicated SBA department or extensive SBA training. Many of the pre-submittal items can be tackled by the LSP, so they will continue to work the loan as much as possible regardless of the government, helping the lender keep the deal alive and the borrower engaged.
Still, it’s best to prepare your borrower for any potential delays that may occur. Communication is essential to managing your borrower’s expectations. Your LSP can help you develop realistic timelines and answer borrower related questions. A shutdown may cause delays, but they are delays that can be managed, keeping the SBA route alive and viable for borrowers.