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A common question I hear from small business owners is whether or not it is beneficial to use a broker when seeking SBA financing. My answer is almost always no, it is not necessary. This is not because I think brokers don’t have a place in business lending. There are many loan brokers who can give good direction and financial advice to help you grow your business. But when it comes to SBA loans, I think it is best to work directly with a reputable SBA lender for these main reasons:
Established Relationships
If you already have a business relationship with a bank or credit union that provides SBA lending, it makes sense to go to them first. You have a track record with them already (hopefully a good one) that can help in the application process. I think this is especially true of smaller community banks and credit unions that can take the time to get to know their small business customers and understand their goals and needs.
Product Placement
The SBA has many products that cater to a wide range of borrowers. For example, I specialize in the SBA 7(a) loan program, a partially government-guaranteed loan program which allows participating lenders to assume more risk than they would by originating conventional bank financing. With this product, we can accomplish lower down payments, longer repayment terms, and easier qualifying criteria than conventional bank financing, because our repayment risk is reduced by the partial government guaranty.
But not every SBA lender is equal and lending criteria varies by institution. How do you know if the broker in your transaction is going to find an SBA lender who will approve your financing? Is the broker’s recommendation the best one for you to follow? The answer is, “It depends.” Lenders who specialize in SBA loans will be most familiar with the various products and their strengths and weaknesses, so they’ll be more adept at prequalifying you and placing you in the product that best meets your needs and financial profile.
Turnaround Time
Working directly with an experienced SBA lender can speed up the application and approval process. Government guidelines are always changing, but as an SBA specialist they’ll be on top of recent changes and new product guidelines for a smoother application process. If time is a factor, you’ll also want to choose an SBA Preferred Lender as they can complete the entire process in house without having to send your application to the SBA for approval.
How do You Find the Right SBA Lender?
If you’re a small business owner seeking funding for a new project, you do not need a broker to find a suitable SBA lender. Any SBA loan expert, like myself, will be happy to refer you to a trusted and experienced lender in your area. The SBA also has excellent resources online. Check with your local district SBA office, and with your local SBA lending trade organization, for recommendations of accommodating SBA lenders for your particular loan request. You can find your local district SBA office at www.sba.gov. The professional trade organization for Houston area SBA lenders is called the Houston Association of Government Guaranteed Lenders. Their web site is www.haggl.com.
If You Do Choose to Work with a Broker
If you do choose to go through a broker, make sure it’s one that specializes in your industry. The best SBA lender recommendations come from real estate brokers, business brokers, and loan brokers who are very experienced with transactions involving the industry represented by their small business client. Having had other clients who successfully achieved SBA financing for similar businesses in that industry is an indication that the broker knows from his own experiences which SBA lenders have been most accommodating in the business owner’s market. Also, having successful experiences placing the financing for their clients, these brokers are in a position to help the applicant gather all the information necessary to make the transaction successful. The broker is motivated to get the deal done as quickly as possible, because he will be earning his sales commission and loan referral fee. If you are using the SBA guaranteed loan program, make sure the lender pays your loan referral fee. The borrower should not have to pay the broker’s loan referral fee, because there are lenders in the SBA 7(a) government-guaranteed loan program who will pay the broker’s loan referral fee for you. If the broker is experienced with transactions like yours, he is not likely to refer you to an SBA lender that does not have a strong appetite for your business.