Despite the problems with the Stimulus Package, SBA loans are
likely still the best source of financing in the nation for your small business. The reason? Compared to the other
source of financing available to small businesses, which really boils down to conventional financing (meaning that
banks lend their own money and hold onto the loan in their portfolio), SBA loans remain the most reliable in terms
of actually closing...
The underwriting standards for conventional small business loans
are substantially tougher than with SBA loans and banks are much more "nervous" to lend without the government
backing. For example, 85% loan to value financing on SBA loans compared to 60% loan to value on conventional. Debt
coverage ratio's as low as 1.2 on SBA, versus 1.4 for most conventional lenders. It goes on and on in terms of
underwriting rules. The SBA underwriting guideline are by no means easy, but are more lenient than the other
options out there.
There is another side of underwriting for banks that is more
subjective and makes conventional lending more "fragile" for borrowers. At the end of the underwriting process,
loan committees still have to make the "go, or no go" decision to fund the loan or walk. The risk for borrowers
that their bank will cancel their loan request deep into the process, for subjective reasons, is substantially
higher with conventional loans. It's their money and they are that more skittish about closing. Bottom line if you
have the option to go either route, SBA or conventional, take a long hard look at SBA loans for this
As far as above mentioned issues with the government created
Stimulus Package, the issue has really boiled down to uncertainty for banks which than trickles down to borrowers
in the form of banks not wanting to lend and or not wanting to lend aggressively. The main problem for banks has
been that the Stimulus has been activated, expired, than re activated four times now. And currently it is not clear
whether or not they will reissue the 90% guarantee or not. They have been put in a difficult position at no fault
of their own.
Historically the Guarantee for banks has been set at 75% on the
popular SBA 7a loan. With the Stimulus they pushed the guarantee to 90% creating an incentive for banks to do loans
that they normally wouldn't consider.
So for borrowers that are proceeding with an SBA business
loan request, it would be prudent to get them to agree to do
the loan at 75% so that you prevent the chance of having the funding SBA lender pull out based on what the
Government does or does not do.