By Jeff Rauth. Email Here or 248 885-8797. SBA Loan Officer at a Bank That Lends Nationally. 15 Years Commercial Real Estate Experience. Past Commercial Mortgage Broker.
Below, we discuss the SBA loan process, from the point of initial contact with a lender to the closing of your loan.
First of all, you need to understand that each bank or lender has to be approved/authorized by the SBA in order to work with them. And there are different levels of approvals lenders get from the SBA. These levels of approval are based on the length of time they have worked with the SBA as well as their performance with them (based on quality of submissions and rate of defaulted loans, etc). Each lenders approval level, dictates steps involved with processing SBA loans. I.e. the lower the level of approval the lender has, the more steps there are in the loan process for you as well as for the bank. So, you want to work with lenders that have the highest level of approval.
The levels are GP, CLP, PLP. GP is the lowest and PLP is the highest level of approval and dictates that your loan will not have to be approved directly by the SBA, only by the funding bank/lender. With CLP and GP lenders, your loan will have to be approved by the lender, than approved by the SBA. So there’s two underwriting and approval processes if you work with a lender that doesn’t hold the PLP status. This means that the loan process will take an additional 2 to 3 weeks, at a minimum.
Loan Process – Step By Step – PLP Lender
- Loan submission– The first step of the SBA loan process is to shop your loan request to various SBA lenders. After you’re satisfied that you’ve found a decent fit, you’re going to have to provide the following documentation: 3 years of business and personal tax returns, year to date financials, personal financial statement compete with authorization to pull your credit, resume, as well as other documents depending on your transaction, for example on a real estate purchase you’ll have to provide bank statements and a purchase agreement. Once the loan officer receives these documents an initial underwriting will be performed to make sure the loan fits both bank policies as well as the SBA’s. The transaction will also likely be discussed internally at the bank to make sure that they really wants to do the loan. This step could take a few days to a few weeks, depending on how long it takes you to provide the requested information and on how efficient the lender is your working with.
- Term Sheet – Assuming the lender wants to do the loan they will typically issue you a term sheet that list the basic “deal” points of the loan such as structure, use of proceeds, rates, fees, etc. They will also ask for a Good Faith Deposit to make sure you’ve stopped shopping and are working with them. This deposit is later used to cover third party reports, such as appraisal, assuming your loan is approved. This step should take less than a week, if you and the bank is organized.
- Approval – Once you signed the term sheet and send in the good Faith Deposit, you are now on your way to the most important part of the loan process – getting the loan approved. The process now intensifies as underwriting really begins their work and heavily scrutinize the documents you’ve provided. You will also have to fill out all of the SBA specific forms at this point such as the SBA form 413 (Personal Financial Statement). It gets very detail oriented at this point and you need to make sure you do this correctly. Once all of the forms are in and you have successfully answered all of the underwriters questions the lender will be an a position to complete their analysis and submit the loan to the decision makers (normally a board) to approval the loan. Assuming the board approves the loan they will draft a commitment letter for you to review/execute. The commitment letter is a legal document stating they will fund the loan as long as the conditions are met. For example, on a real estate purchase, there will be a couple of conditions such as, that the title comes up clean with no existing liens, the property appraises for the purchase price, and that there are no environmental issues. The commitment letter will also require the borrower to provide the rest of the money for the third party reports. This step can take as quick as a week to months depending mostly on how organized you are and how willing you are to provide the requested docs. It also depends on if the lender you’re working with has a good system and really knows what they are doing.
- Third Party Reports – After the loan is approved and the lender has received your executed commitment letter and required money to cover the third party reports, the lender then moves forward with ordering them. Typical reports include real estate appraisal, environmental report, title commitment, equipment appraisal, feasibility study, business valuation, all depending on what type of transaction it is. Get an idea of the SBA loan closing costs here. The bank will also produce a Needs List at this point. The Needs List is basically what the closer is missing from the borrower in order to close the loan. Typical items on the list include, proof of various types of insurance (like hazard, life, workmen comp), entity documents, bank statements, etc. This step normally takes about a month as you are basically waiting for the third party reports to come in. Most real estate appraisals take around 3 weeks to complete, the rest of the reports should take a week or two.
- Closing – Assuming all of the third party reports came up with the hoped for results, you’re now ready to complete the SBA loan process and close the loan. It’s generally anti climatic as you just sign documents, non of which are normally negotiable.
In a nut shell this represent the entire SBA loan process for virtually all SBA loans.
Hope this helps!