Small Business Administration Loan Brokering
American small businesses are an essential part of the United States economy, being that nearly two out of every three new jobs are created by small companies. The U.S. currently has over 28 million small businesses operating for-profit and employ around half of the total U.S. workforce. To keep American small enterprises growing, these small companies need access to affordable capital. Oftentimes, these small businesses find themselves shut-out from traditional bank financing because they don’t meet their banks credit and capital requirements, the business firm hasn’t been in operation long enough to make the bank feel comfortable providing a loan, or because the small business doesn’t have sufficient cash-flow to service the loan. In fact, a 2013 study by the New York Federal Reserve of small business owners found that access to capital was the top concern of small business owners. Access to sufficient capital has been so difficult to secure that only 55% of profitable small businesses that apply for a loan actually receive funding.
To help small businesses gain access to affordable capital the United States Small Business Administration provides loan guarantee programs to banks, community and commercial lenders to help increase the approval of bank-rate financing to small companies. But not all SBA lenders are the same. Some focus only on specific programs like the SBA 7(a) program and SBA 504 program, while others only focus on the SBA Express loan program and SBA Microloan program. On top of that, some lenders have regional and industry restrictions, or have a preference in mostly funding real estate, equipment, working capital, acquisitions, partner buyouts, etc.. Even more, SBA loans require more paperwork and documentation than other types of business loans because the SBA wants to guarantee that small businesses meet their standards to qualify for the program. Navigating the paperwork and documentation process can be tricky and time-consuming (especially for small business owners that spend enormous amounts of time running their operations).
What is a SBA Loan?
SBA loans are a type of financing provided by large banks, small banks, community and and other commercial lenders that are partially/mostly guaranteed by the U.S. Small Business Administration (SBA). The SBA doesn’t actually loan money to small businesses, but instead encourage SBA lenders to loan money to companies by covering up to 90% of the lenders’ losses should the borrower default on the loan. By covering a large portion of the lenders’ losses, the SBA loan program helps encourages lenders to fund companies with affordable bank-rate financing because their risk is almost reduced or nearly non-existent.
What is an SBA Loan Broker?
SBA loan brokers and financing consultants will analyze the borrowers financial data, explain all the SBA loan programs and financing options available to the small firm, prepare an SBA loan package to submit to SBA lenders, and then find the right SBA lender to fund the small business. After finding the small business the right SBA lender to provide them financing, the SBA loan consultant will then work with the borrower to prepare all the documents and paperwork needed for full-underwriting by the lender. After that good SBA loan consulting experts will work with you from the beginning of the process until you are funded.
Why Use a SBA Loan Broker?
- They are experts in navigating SBA loan programs
- Good SBA loan consultants and brokers can analyze your financing needs and offer expert advice
- Qualified SBA business loan brokers have relationships with lots of SBA lenders in all regions of the country
- SBA loan experts can speed up the overall funding process by weeks.
Reasons You Should Not Use a SBA Loan Broker
If you feel comfortable navigating the SBA process on your own, then deciding not to use SBA loan consulting may make sense. Some SBA financing brokers will require an upfront packaging fee to prepare their SBA loan request. The problem is: you may be paying that fee without knowing if you are even SBA qualified, or without knowing if the SBA loan adviser has a sufficient network of lenders to properly-handle the situation. In fact, you have to keep in mind that small business lending is pretty much unregulated at the moment. And with the lack of regulation the number of poorly-informed (or ethically challenged) business loan brokers have increased. These brokers are usually more concerned with putting their own interests before those of their clients. What does that mean for the client: the broker steers the small business towards a high-rate and expensive merchant cash advance or other alternative loans rather than traditional financing. They are also much more lucrative for the broker (at the expense of the client). That is why making sure a SBA brokering expert has your best interest at heart is important. Talk to them about your situation, and see what they have to say. If they want to steer you toward high-rate financing from the beginning, run.
Protect yourself. Make sure the consultant is going to steer you toward SBA and/or traditional financing first. Make sure their network of lenders is substantial, and don’t look to alternative lending options until you’re exhausted all of your SBA and traditional financing options.