The Many Faces of SBA
Preferred Lender Program:
In order to achieve this status through the SBA, a bank must close a certain number of loans over a period of time. James A. Kocsi, district director of the SBA-New Jersey District, said that once the SBA feels comfortable with the bank, it will accept the institution’s credit evaluation and default the credit decision to the lender.
“We are giving them license to act on our behalf,” Kocsi explained.
While there is no set amount of loans a lender must make in order to gain PLP status, Kocsi said the lender must work with the SBA for at least one year. Preferred Lenders can loan up to $2 million.
The 7(a) Loan Guaranty Program:
Through the Small Business Administration, banks can offer several types of loans to local businesses in need of financing.
The 7(a) Loan Guaranty Program is considered the most flexible business loan program by the SBA. It allows businesses that might not be eligible for loans under normal circumstances to obtain financing at “reasonable terms,” according to the New Jersey SBA Web site. The bank can determine whether the loan requires a guaranty from the SBA, which assures the lender reimbursement of the guaranty portion of the loss, if a borrower defaults. In most cases, the SBA will become involved in loan requests up to $2 million, with an 85 percent guaranty for loans of $150,000 or less and a 75 percent guaranty on loans of $150,000 or more.
The 7(a) loan does have certain guidelines for borrowers. According to the SBA, the financing must be used for “most sound business purposes, including working capital, machinery and equipment, furniture and fixtures, land and building, leasehold improvements and debt refinancing.”
Part of the 7(a) loan program, the SBAExpress Guaranty Loan program provides a quicker approval process. The loans made under SBAExpress can be a term loan or structured as a revolving line of credit. The program is popular among New Jersey lenders.
According to the SBA Web site, more than 60 percent of the New Jersey district office’s loans originate under SBAExpress. It gives lenders the ability to make loans of up to $350,000 while using their own documentation and securing a 50 percent guaranty from the SBA. Typically, the turnaround time is 36 hours.
The 504 Loan Program:
When growing businesses need financing for major fixed assets, such as land and buildings and machinery equipment for expansion and modernization, the 504 Loan Program is available from SBA lenders. The loan is long-term and has a fixed-rate.
The SBA’s guaranty varies with the 504 loan.
According to the Web site, the SBA’s portion of the loan is typically limited to $1.5 million. For loans that show “economic enhancement” with job creation and retention, the SBA may consider increasing the limit to $2 million. Small manufacturers can sometimes secure loans that reach up to $4 million.
According to the SBA, New Jersey lenders have embraced the 504 loan program. Lenders receive a first mortgage lien for 50 percent of the project, while getting an SBA guaranty for up to 40 percent of the project’s cost. Borrowers are required to contribute at least 10 percent to the project cost. The financing works because the SBA “participates by guarantying a debenture issued by a private certified development company with a term of 10 or 20 years. The CDC’s debenture finances up to 40 percent of the project.”
The SBA program in New Jersey is flourishing, according to Kocsi. Last year, the office had 80 active lending partners with many achieving Preferred Lender status.
Technology has also helped make the SBA program easier for banks to participate in. The SBA offers lenders secure electronic transmission called E-Tran. The lender can simply log on, submit the SBAExpress application and receive an answer in less than one day. Some Preferred lenders are also utilizing E-Tran for a one- to two-day turnaround.
“It speeds up the process,” said Kocsi.
By expediting the loan process, Kocsi said the banks are realizing that the SBA program isn’t as complicated as it once was.
“Some banks recall the days when it was a nightmare to get an SBA loan through,” Kocsi said. “It’s much simpler now.”
With both the PLP and Express status, borrowers are experiencing smooth transactions with their lenders. Lynn Ozer, senior vice president at Susquehanna Patriot Bank, said the institution does all the SBA paperwork for their borrowers.
“We make the process very seamless for them,” Ozer said.