PLP vs GP Lending in 2019
Understanding the Differences
By Steve Mariani
Today I explain the true differences between the lender classifications PLP and GP and why at times it is to the benefit of your transaction to actually process a specific loan request GP. Let’s begin by deciphering the terms PLP and GP. Note that years ago there was an additional lender classification known as CLP (Certified Lending Program), which I will not get into as it is no longer available for those who remember that one.
PLP, Preferred Lending Partner (Program) means that a specific lender has closed enough transactions correctly to satisfy SBA’s review process. They know and understand the SBA rules and have exhibited that through a certain amount of loan requests (submitted GP) prior to applying for their PLP status. Based on their level of volume and expertise the SBA will then issue them the PLP designation. Once awarded the PLP certification that lender can now fully approve loan requests under “delegated authority” without SBA’s full review. After approval a PLP SBA lender only has to apply for a PLP loan number which is typically issued within 24 hours. This level of lender, as you can imagine, brings greater knowledge and experience to the transaction and can typically process and close the transaction much faster than a GP lender is able to.
GP, General Partner (Program) is basically open to most any lending organization that is requesting an SBA guaranty for a specific loan. Typically, this lender only produces a few loans per year as a service to their current customer base requesting an SBA loan. Processing a loan GP becomes a concern to all parties involved if the transaction has any complications whatsoever or requires a higher level of SBA knowledge. A GP lender is usually less familiar with the SBA SOP’s (Standard Operating Procedures) and many times submits loans that are either not eligible at all or under a structure that is not in the best interest of the transaction and the borrower. Loans requests become stalled as the SBA works through the file when not provided all required information upon initial submission. Processing a loan via GP can many times add weeks to the approval process.
We’re constantly asked about GP and PLP lenders and the differences between the two along with benefits of each. What we see is that many potential buyers shop to local lenders without guidance or understanding of these programs and the inexperience comes out only after the loan process has been underway for weeks. Understanding that a GP lender is working your transaction is and should be concerning to you and your buyer if you are not convinced of their level of expertise. The issue in today’s market is that we see many lenders promise things upfront to bring the deal in or stop the borrower from considering other lending options and are looking out for themselves as opposed to the best interest of their customer, your buyer.
Now that I’ve explained the differences between PLP and GP I want to explain one other very important factor. We purposely send loan requests GP at least 2 or 3 times per year. As surprising as that sounds let me expand on this. First thing to note is that any PLP certified SBA lender is able to submit a loan request GP and reasons for this will vary. What changes is that this is a true SBA PLP lender with an extensive knowledge of the SOP’s and is typically sending a request in GP for an exemption to a rule. In street terms, we’re breaking a known rule and asking for an approval.
A recent example at our shop was that the borrower had enough funds for the business acquisition but did not poses enough down payment monies to purchase the business real estate, which made perfect sense to do. In this particular case we requested the SBA agree to a lower down payment then what was required by rule, of course this was approved. We are not in the business of hoping for an SBA approval so ahead of any GP loan submission our firm will contact SBA directly to insure that if this loan request goes GP that the SBA will approve it. Although they don’t approve it upfront, we get a very good understanding of their standing prior to deciding to process it GP. Keep in mind that the lender is of high expertise and we explore the answer before submission which keeps us at a 100% GP approval rate. One other item to note on this type of transaction, nothing is left out of the submission package and every other item is conforming and in order prior to submitting the request. PLP lenders (due to their volume levels) also have an established relationship with the SBA processing center which again expedites the process.
Almost every question we receive regarding this process is how this effects the timeframes and closing. This may be surprising to you, but if our firm processes a GP loan for a specific reason, there is usually not one day extra added to the transaction. Here is what you need to know when sending a loan GP. First is to be sure you have confidence in your lenders experience level, next is to be sure everything required by SBA for an approval is included in the initial submission as nothing slows down a file like additional SBA requests after submission, and lastly, know the answer upfront. When we submit a request GP our lender knows the outcome already and continues the closing process DURING the SBA review. We move the loan to closing even though an SBA approval has not been secured as we are confident it will be.
Submitting a loan GP through a PLP lender is the most effective methods of breaking rules and closing on time. In 2019 we are about to submit our first GP loan and it is based on the latest SBA concerns over licensing. When the buyer does not or cannot secure the license required to operate the business he is buying prior to closing, a work around must be in place. We have been addressing this license concern for many years through other methods but now SBA is informing lenders of their concerns. Our mission is to forge a new path regarding this issue and use it moving forward as we cannot imagine that any business that requires a license can now only be sold to another license holder. Watch for future newsletters as we determine methods for achieving approvals on these type of transactions.
One service (at no cost) Diamond Financial provides to all brokers nationwide is our AskDiamond@easysba.com address where any broker can send in questions regarding our industry and be provided real world answers within just a few hours.
Bottom line, we all know that lenders come and lenders go, but if you are not closing at least 94% of your received lender term sheets then it may be time for a change. Give us a try and learn what real customer service looks like. Diamond Financial has been building broker success since 1996.