Tip of the Week
Learning to do things the "SBA Way"
5 Tips to improve your effectiveness as an SBA lender
Education is not the filling of a pail, but the lighting of a fire
William Butler Yeats
In our daily work with our clients, we often find ourselves using the term "the SBA way". We also say reasonable and prudent, a lot (see last week's Tip). What do we mean? This week we will explore the SBA way (the effective approach to being successful at SBA lending.) Since it takes a variety of roles to fulfill the typical SBA loan, we have organized our thoughts based on the typical roles. If you wear multiple hats in your shop or if you manage a group involved with SBA lending, then you will likely relate to all of the roles.
1. Business Development (Gather). Sales drive the train. Without sales, we don't have customers, deals, income or jobs. So what makes a successful SBA sales person? We believe it starts with a great attitude. What is your attitude about:
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SBA (the agency)
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the loan products/structures (7(a), 504, Express etc)
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small business and their important role in our economy
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about your colleagues in the back shop who support you and your borrowers to get a deal done
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your vendors who help you up your game and deliver exceptional service and so on.
Does SBA lending "light your fire?" or excite you to do positive things? It should. This is great stuff we are working with here - believe it or perhaps consider another calling. And learn fundamental eligibility principals so that you can sort a real opportunity from a pipedream at the get go.
2. Credit Underwriting (Approve). Successful SBA underwriters/credit approvers must have a good balance of business acumen, respect for credit fundamentals, and a healthy understanding of how and when to leverage the power of the SBA credit enhancement (straight guarantee or subordinated mortgage structure). They need to appreciate both the science (analytics) and the art (structure) of sound business lending. The SBA way prescribes that there must be reasonable proof of operating cash flow from the business to repay the loan. Naturally the other C's of credit are important, but understand the sources of equity and debt, the uses of the loan and the primary sources for repayment and you are well on your way to underwriting the SBA way. And don't forget to explain it by documenting your rationale succinctly.
3. Closing and Funding. This is where the "rubber hits the road" in SBA lending. In our world, the loan authorization is the "bible" - the primary document that drives the many other legal and business agreements and requirements to perfect the loan the "SBA way". It is often said that more guaranties are lost or compromised in this phase of the loan process than any other. Why? We notice that many occasional business lenders unfamiliar with the "SBA way" don't understand the importance and position of the authorization in the context of an SBA loan. Be sure to document equity and loan disbursements faithfully to the loan authorization.
4. Servicing. Is your borrower just an account or a number on a portfolio listing or do you know your customer and care about their success? The SBA way says, you should treat your SBA customers at least as well as your other clients of the bank. Do you conduct routine site visits? Do you obtain and analyze ongoing financial and key operating information? Do you have designated officers to entertain and successfully execute on routine servicing requests (or at least an effective process to channel these kinds of requests back through credit underwriting?) Remember, you have unilateral authority to service most routine actions and only a few things require prior approval or notification. See the unilateral matrix for guidance on servicing the SBA way.
5. Workouts/Liquidation/Guaranty Purchase. Most prudent SBA loans pay as agreed (sometimes early). However, it stands to reason that there will be higher incidences of delinquencies and problems in the typical SBA portfolio vs. a "normal" conventional loan portfolio. This is due to the "credit elsewhere philosophy that underpins SBA 7(a) and the highly flexible structure of the SBA 504 program. If things are done well in the prior stages, most lenders can expect a reasonably positive experience at the end of an SBA workout - full payment under the guaranty. When requesting payment from SBA, do you have everything you need for a complete 10 tab package? Are you prepared to tell the story (the good, the bad and the ugly)? The right way to collect is full disclosure, reasonable rationale for decision making, and a complete purchase demand kit (PDK or 10 Tab).
sbaAccess is here to help you and your organization "light your fire" with SBA lending. We can customize training that is unique in the industry. We don't just "fill up your bucket" in a "sit and get" classroom setting. We facilitate constructive adult learning in tune with The SBA Way of doing things right, for each role and stage of the loan making process. We can also help build or tweak your SBA Lending Policy and Procedures. And we can provide expert advice for those troubled loans where so much is at stake. Give us a call for a free initial consultation to discuss how we might be able to help you or visit us online at our new and improved website www.sbaAccess.com. We would love to have you join the sbaAccess lending community where we believe in doing SBA lending right.
Take the right approach
Brian Burke and Karen McHugh
SBA Access ©2009 - All Rights Reserved
All content is copyrighted and unauthorized use is strictly prohibited. If you would like to quote any part of this text, email bburke@sbaaccess.com or kmchugh@sbaaccess.com for permission.
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