Utilizing SBA lenders in 2016
The difference in lenders does matter!
By Stephen Mariani
Navigating the lending maze in 2016
So every Monday morning, (or whenever your staff meeting is), the local BDO (Business Development Officer) shows up in your office with donuts for the staff and again asks to look at your current deals, should you show him? His card says he is the vice president of SBA lending and claims to be in the industry many years. Well, the truth may surprise you, they are all “Vice Presidents” and if you have been in this industry for any length of time, you’ve noticed that already. The real concern at hand is if he/she can provide the financing you require to close transactions. The easy and short answer is maybe. Ok, not so easy. Below I will describe a few things to consider when entrusting your transaction to any “VP” of lending.
After 20 years of providing SBA financing for business acquisitions I have learned the many tricks of the trade and how to determine real lenders from fictitious lenders within minutes. I’d like to share those with you and hopefully save you some time, stress and frustration along the way to your closing.
The very first thing to keep in mind is that we are now in 2015 and many (most) SBA lenders left the market in 2009 and 2010 with the remaining ones staying because of their conservative methods. So getting back to our VP conversation above, they either switched lenders and have been in the industry for many years under another name or have just entered the market as the newer lenders showed up and hired salespeople. My big concern is the latter as they aren’t going to tell you that they have no experience and have done a total loan volume in their career of less than a million dollars. This is where you must do due diligence on not only them but the lending group they are part of. Just attend any current broker conference and you will notice a dozen or more lenders lining up and promising success and approvals along with boasting about their recent closings.
I recently had a client choose to work with a VP from another lending source on a large transaction ($2,300,000) and all I requested from my client, as he left our care, was the name of the VP/lender. With our connections throughout the lending community I was able to determine this VP, the one our client had chosen over us, has never closed one single SBA loan and was hired only 6 months prior. Although he did promise great things to my client, I knew he would not perform and produce on those promises. My moral dilemma when this arises is whether to explain this to my client and try to win him back or let him go down the road and remind him I am here if he should run into any difficulty. I always choose the same response, sit and wait. The reason I keep in touch is to be sure my client knows I’ll be here to pick up the pieces in the end, and I do quite often. I described this scenario because this has become an epidemic lately and is happening 2 to 3 times a month all over the country and may be happening to you.
What can you do about this new epidemic? Let me start by telling you how we are addressing this concern. First and foremost when we see a lender term sheet or lender proposal that directly violates SBA rules, we point it out to the client and broker in the transaction as we can determine that this loan scenario cannot actually be approved. This is a cut and dry, short conversation. What if it’s not so cut and dry? What if they claim they can leave out the buyer’s personal residence or prevent the client’s spouse from guaranteeing the loan even though she will be an officer of the new corporation? The list of possible fictitious options goes on and on and we’ve seen everything, maybe you have too.
So here are the basic 3 things you MUST know about any lender you are considering relying on for acquisition financing.
- How long has your BDO or VP been in the SBA lending arena?
- Where does this lender rank in the state/country in regard to all SBA lending activity?
- What was the last deal they closed and what amount of goodwill was included?
These can give you a general sense of the aggressive of this lender but you may need to ask more specific questions depending on the complexity of your transaction.
If you have been following my previous writing’s then you may remember one titled “Competing with mythical lending 101” where I describe in detail how we cannot compete with mythical lenders. I’ve also written on how to interview lenders which should be the first thing you do with any newer lending institution you are considering utilizing. These days lenders are all lining up for your business but don’t allow them waste a month of your time and put your deal in jeopardy when you have the tools to determine the outcome upfront. It’s easy to forget that time kills all deals, don’t let it kill yours.
AskDiamond@easysba.com is always available for specific questions regarding this or other SBA rules. This assistance is 100% confidential, not lender specific and your email is never shared.