SBA financing – particularly when used for business acquisition – involves very specific limitations and requirements. Because of its detailed and complex nature, using just any bank for SBA lending would be a mistake. Do your research and pick a bank that has experience and that you trust.
This is not an exhaustive shopping guide but these two tips will get you well on your way to making a solid choice in your SBA lender.
1. Use the SBA as a resource
The SBA has a couple ways it provides hints as to what banks are best.
• The list of the 100 most active SBA lenders (Found here)
If any of these are in your area, give them a call and seek out their expertise. You may not end up using a lender from this list but it’s a good starting point.
• The PLP vs. CLP distinction
Banks that have SBA knowledge and experience doing SBA lending can be given either of these distinctions in order to more efficiently provide loans.
When a bank is part of the Preferred Lenders Program (PLP) it is able to provide loans without approval from the SBA directly. A Certified Lender Program (CLP) bank is still required to send the loan application to the SBA for approval but those loans are given priority within the SBA to be looked at sooner.
Using a CLP bank may be a good option if your deal structure is complicated or unusual because it is likely going to be sent to the SBA for approval even at a PLP lender. With esoteric deals, the added layer of reassurance that the deal works will be desired by either type of bank. But if your deal is relatively straightforward, a PLP bank is best because you’re dealing with the bank only, not the bank and an SBA reviewer.
2. Ask the right questions
To get an idea of how equipped and experienced the bank is to handle a deal like yours, ask questions pointed at their history and the scope of their SBA lending. The following questions work well:
- How many SBA deals has the bank done in the past two years?
- How many SBA deals has the loan officer done in the past two years?
- What was the average size of those SBA deals?
- Did the loan include real estate? (This will help you know how they expect to collateralize the deal)
Picking a bank is less than half the battle but it is still part of the battle. Choosing the right bank can save you a lot of headache as you move forward in closing a deal.