Neither SBA Loans or Lenders Are Equal

Neither SBA Loans or Lenders Are Created Equal

The SBA is trying to make SBA lending more accessible and streamlined which is reflected in their most recent changes to their standard operating procedures. When quantifying the differences between the old and new SOPs, a theme has emerged. The phrase "do what you do" and its variations appear six times more often in the new SOP. The new SOP promotes more lender autonomy and not only grants lenders greater discretion in key areas but also reflects a broader trend towards fostering a more dynamic and responsive lending environment.

While this "do what you do" approach empowers lenders to implement more of their own bank policies and judgement, it also compounds the variability with SBA loans depending on the lender. Already a business owner may receive a very different SBA loan from one lender compared to another, even though a baseline of SBA standard policies applies across the board. Although providing lenders with more autonomy is generally beneficial, it underscores the fact that not all SBA loans are created equal.

SBA Conveys More and More to Lenders: Do What You Do

The new SOP (50 10 7.1) is placing greater trust in lenders' judgment and expertise. By quantifying the differences between the old and new SOPs, the phrase "do what you do" and its variations appear six times more often in the new SOP. The new SOP promotes more lender autonomy and not only grants lenders greater discretion in key areas but also reflects a broader trend towards fostering a more dynamic and responsive lending environment.

While this "do what you do" approach empowers lenders to implement more of their own bank policies, it also compounds the variability and diversity in how SBA loans are structured and approved. Already a business owner may receive a very different SBA loan from one lender compared to another, even though a baseline of standard policies applies across the board. Although providing lenders with more autonomy is generally beneficial, it underscores the fact that not all SBA loans (or lenders) are created equal.

Not all SBA loans or lenders are created equal

It’s important to understand that the lender, not the SBA, is the one providing the loan. While the SBA guarantees the loan, it does not issue the funds directly. Instead, the SBA offers standard operating procedures for banks to follow, while also allowing lenders to apply their own policies. Thus, each lender's guidelines are layered on top of the SBA’s rules and procedures.

Comparing SBA lending to electric vehicles is more fitting than comparing it to a specific brand like Tesla. Just as electric vehicles differ from gasoline cars, there are various SBA lenders with distinct offerings and approaches. All SBA lenders are unique, much like how different doctors specialize in various areas of medicine. For example, a podiatrist focuses on foot health, while a cardiologist specializes in heart health. You wouldn't consult a foot doctor if you needed help with your heart.

Every year, thousands of small business owners apply to SBA lenders that may not specialize in their specific industry, business type, or desired loan amount. This often stems from the misconception that all banks are similar when it comes to SBA loans, with the only difference being the interest rates they offer.

Each SBA lender possesses varying levels of expertise and comfort with different industries, locations, and loan amounts. If you’re a financial advisor seeking a multi-million dollar SBA loan, why would you apply with a local lender that has never approved an investment advice industry loan or any SBA loan over $500,000? Many borrowers initially choose the wrong lender, wasting weeks only to discover they must start the process over elsewhere.

There has to be a better way, now there is

The primary reason for this confusion is that borrowers often lack awareness of the specific criteria that might lead to a denial until they navigate the application process with a particular bank. Numerous "make-or-break" factors exist, and if any one of them fails to meet the individual bank’s requirements, the application could be denied. Basic criteria such as loan amount, purpose, location, and credit score are typically screened quickly. However, more detailed aspects—such as loan-to-value (LTV), debt-to-income (DTI), and debt service coverage (DSC) ratios—usually emerge only during the underwriting phase. Consequently, a business owner who starts the application process with optimism may find out weeks later that their loan cannot be approved, necessitating another round of applications elsewhere.

It’s also possible for a borrower to be rejected by one SBA lender and then approved by another. This inconsistency can be perplexing, and it has long been a challenge in the realm of small business bank loans. However, we have significantly addressed this issue through the creation of LoanBox. Now, business owners can connect with top SBA lenders that align with their specific industry, location, business age, loan amount, purpose, and many other criteria.

LoanBox's algorithms elevate the pre-screening process, matching borrowers to lenders based on detailed underwriting-level insights. Once you complete your loan package, you can instantly see which SBA and conventional lenders match 100% of your criteria. You can select one or multiple lenders to access your LoanBox package. Interested lenders—typically all of them, given your a perfect match—will generate loan proposals. You can then choose the most favorable offer, execute the proposal, and proceed through the underwriting and closing process, receiving alerts as your loan advances through each stage.

While LoanBox connects advisors with the right niche lenders for their specific need to work with direct, some advisors prefer human expertise and guidance. If this is you then we would love to discuss your loan and provide our insights.

This article was authored by Darin Manis, founder of AdvisorBox, LoanBox & AdvisorLoans.