For many lenders, the SBA loan guaranty programs are a mystery, or at the very least complicated. With so many other loan programs and operational goals to manage, many lenders find it difficult to add SBA loans to their loan offerings. However, many banks and credit unions know that offering SBA guaranty loans will greatly help the large number of small business clients they serve. The question becomes, how to provide SBA loans to our clients without a huge investment or risk to the bank? The answer is to leverage an SBA Lending Service Provider.
The role of a Lending Service Provider (LSP) is to provide community and regional banks and credit unions with a turnkey SBA department. The LSP operates as the bank or credit union’s SBA back office, assisting with a number of SBA specific issues including:
- Determining eligibility for SBA loan programs
- Structuring SBA loans to meet SBA guidelines and project/loan needs
- Processing and packaging SBA required loan documents and forms
- Securing all SBA approvals
- Underwriting the SBA loan guaranty portion
- Auditing SBA loan files for compliance
- Servicing SBA loans and facilitating secondary market transactions
The LSP works in tandem with the lender throughout the process to develop a loan package that meets SBA guidelines as well as the lender’s specific rules and standards. Essentially, the LSP bridges the gap between the Certified Development Corporation, who represents the SBA, and the lender. Additionally, the LSP enjoys preferred status with the SBA, which streamlines and speeds up the process compared to when a lender manages the whole transaction on their own. This improves the experience and timeline for the borrower as well. So not only does the LSP help the lender provide their borrowers with more loan options, it also helps the lender provide a quality experience to their customer without the need to invest in developing a full-fledged internal SBA department.
There are many Lender Service Providers operating, including our own firm, Capital Growth Solutions. Not all LSPs are created equal. Each can negotiate their own terms and rates with each lender, although the SBA does set specific limitations and guidelines for the LSP agreement. While some charge additional fees, we work solely on the fees collected from underwriting and servicing the loan. This means only loans that reach those stages are charged fees by us, allowing lenders to explore SBA options for their borrowers and only pay if and when the loan proceeds. This is especially beneficial for lenders who are not familiar with the SBA loan programs and requirements and need a low risk way to work through the learning curve with their loan officers.
If you are curious about adding SBA loan products to your bank or credit union offerings or have been dabbling in SBA loans with minimal success and need help improving results, it may make sense to at least talk to a Lender Service Provider. LSPs are not limited by region, so you can work with any one across the country. All are regulated by the SBA and will negotiate directly with you to develop an arrangement that works best for all parties. If you have more questions about LSPs, you can reach out to us directly Contact Us.