October 24, 2019

How to Manage a Borrower’s Expectations During an SBA Loan

Business owners are busy, with many demands on their time and attention. They rely on you as their lender to help educate and facilitate the loan process. Many business owners are not aware of all that goes into the loan process, especially when dealing with the SBA. The more you can do to help set and manage a borrower’s expectations throughout the process, the stronger your relationship with your client.

Lenders must do their due diligence to mitigate risk and make sound lending decisions. SBA too must do its due diligence, but as a government agency, and therefore a steward of the people’s money and trust, the SBA must adhere to even more stringent practices in order to ensure that they are making smart lending decisions. As a result, they must require more documentation and forms in order to vet and verify a loan.

Expectations for Documentation

As mentioned earlier, borrowers are generally surprised by the amount of documentation that is required to process a business loan – be it conventional or SBA. Each project will have unique requirements for documentation, but in general, borrowers need to be prepared to provide the following.

Personal financial information for owners with 20% or more interest:
• Personal tax returns for the previous three years
• Form 4506T
• Form 1919
• Equity injection documentation (statements)
• Resumes for all managing partners
• Photo identification

Additionally, borrowers may need to provide additional documentation for any character items related to form 1919 (Form 912 if criminal history exists) and any credit issues.

Business financial and organizational documents for core business and affiliates:
• Business tax returns for previous 3 years
• Form 4506T
• Interim financials
• Organizational documents (articles, EIN, etc)
• Business debt schedule
• Proof of applicable insurance – general liability, workers comp, etc

Project related documentation, includes but not limited to the following:
• Agreements – purchase, franchise, lease, etc
• Quotes for FF&E or construction
• Projections and assumptions for startups and acquisitions
• Uses and sources breakdown
• Valuations

During the pre-qualification stage, your Lender Service Provider, such as Capital Growth Solutions, will go through the initial request and make the initial checklist of required documentation. As documentation is received and reviewed, additional supporting documentation may be required and will be requested as needed. The more accurate and complete the information that is received at the onset, the faster and easier it is for the LSP to put together the loan package.

Expectations for Timeline

Because a loan must go through the SBA review process in addition to the lender’s process, it is key to set a borrower’s expectations in terms of timeline. Generally speaking, if all information and documentation is provided in a timely manner, the entire process can take 60 Days from Handshake to Close. The process is broken down as follows:

  1. Pre-Qualification Memo – 2 days
  2. Custom Application Checklist – I day
  3. Engagement Meeting/Borrower Project Review – 1 day
  4. Preparation of Credit Memo – 5 days
  5. Lender Approval of Credit Memo – 5 days
  6. Quality Assurance Review and Preparation of Submission Documents – 2 days
  7. SBA Submission – 21 days for General Processing/One day for Delegated Authority
  8. Closing – 14 days

Of course, the timeline is largely dependent on how quickly a borrower provides documentation, how accurate that information is, and if any issues are uncovered that require additional documentation and processing.

A Responsive Borrower Is Key

Much of the SBA loan process hinges on how responsive a borrower is to requests and how complete and accurate the information is that they submit. The majority of delays in a loan fall on the borrower’s shoulders. As a business owner, their primary focus is on the daily operations of their business. The loan application process is a temporary event and can easily fall below other priorities.

As the primary owner of their lending relationship, it is key that you communicate and reinforce how checklist items impact timelines and the likelihood for approval. Your LSP can help you set those expectations and manage the timeline, but ultimately the responsibility for managing a borrower’s expectations lies with the lender. The lenders who enjoy strong, long-term relationships with their clients are those who actively communicate with and educate their borrowers.  

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About Chuck Evans, CEO

Chuck has 30 years in commercial banking and economic development lending. Prior to joining Capital Growth Solutions, he was President, CEO and Co-Founder of PrudentLenders, LLC. after having previously served as Managing Director for Pennsylvania’s largest Certified Development Company: South Eastern Economic Development Company. Chuck has been an active supporter of small business and an active participant in the industry associations, National Association of Certified Development Companies (“NADCO”) and National Association of Government Guaranteed Lenders (“NAGGL”).

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