The simple way to create a profitable SBA department.
Many financial institutions are now seeing higher demand from their clients for SBA loans, due to the highly popular SBA PPP program. Considering the high demand, those lenders that do not have experienced SBA staff to fund loans are missing out on an opportunity to build their client base. This issue must be addressed, especially considering that SBA lending is one of the more profitable lending activities that a financial institution can offer.
Wouldn’t it be great to have a variable-cost SBA department just down the hall that reports to you and has the expertise to handle your SBA loan requests efficiently and accurately from start to finish? Total SBA is that solution—while we may not be down the hall, we are only a phone call or email away.
How does the SBA loan process work?
The keys to creating a profitable SBA department include loan sourcing, underwriting, processing, closing, and servicing. Let’s review this process in more detail and see how Total SBA can make your strategic goal of SBA lending a reality.
Sourcing SBA loans
Total SBA has a network of referral sources to assist in finding quality SBA loans nationwide. We will work with you to understand the types of loans that best fit your credit model and geography so that we can provide a fresh influx of business to your door.
But maybe you have been trying to get your commercial lending staff to generate SBA loans without success. The reality is that most loan officers aren’t experienced with SBA and, accordingly, are hesitant to take a borrower in that direction. The result is that you lose that client and potential income. We are able turn that loss around.
The Total SBA solution is to give your team proper training on SBA rules and regulations, so they are better equipped to identify SBA loan prospects.
We also provide simple step-by-step instructions on how to hand off a loan to Total SBA.
As your SBA department, we handle 95% of the work to get the loan from initial contact to closing.
Underwriting & Processing
Our team has over 100 years of combined experience and is dedicated to efficient, accurate, and friendly customer service. We work with your lending staff to assist in gathering the necessary borrower information to underwrite the loan request. We will do a complete underwriting of both the credit aspects of the loan and all the SBA eligibility requirements. We provide your institution with a complete credit memorandum for your review and due diligence.
Once the lender has approved the loan request, we prepare the SBA loan application and submit your loan to SBA for approval. Once approved, we will do everything—pull together all the necessary documentation, searches, insurance, etc.—to get your loan closed and fully funded.
SBA loan sales and profitability
SBA loans have a 75% government guaranty that can be sold on the secondary market. This market is very active, and currently, a lender can sell the guarantees for as much as 12% net to the bank. If your team can generate the $5 million in SBA loans, the 75% that is sellable would be $3,750,000 and at a 12% premium, you will generate a $450,000 gross profit on the sale. In addition, when you sell the loans, the investor buys the guarantee at a 1.0% discount from the note rate, so the bank will continue to receive 1.0% on the sold portion, which in this example looks like: $3,750,000 X 1.0% = $37,500 in annual servicing income.
Servicing
Once the loan is closed, the lender will still need to treat their SBA portfolio differently from a conventional, commercial term loan. Unfortunately, most financial institution core systems do not accommodate SBA loans very well, so Total SBA has a solution for this as well: we will handle the loan accounting and prepare the monthly 1502 report to SBA’s Fiscal Transfer Agent, Guidehouse. We can also take care of SBA’s servicing requirements related to any possible modifications or changes to the loan. With SBA lending, it is critical that the servicing area be handled by a team with the proper experience.
Conclusion
As you can see, SBA lending can add an invaluable additional income stream to your bank. However, you have to train your lending team and provide them with an underwriting, processing, and servicing team that they will have confidence in. Total SBA allows your institution to immediately obtain an experienced SBA backroom and avoid upfront or overhead costs. With the current high demand from business owners for SBA financing, it is important for your institution to have an SBA solution ready to better serve its business community.
Article by: Brian Carlson