I really enjoy borrowers who meet me by announcing: “We went on the SBA website last night and read up on the program.” And my thought is: “Great! Another person I have to talk down out of the trees.”
”The truth is this: SBA lending for a bank is like the good old Venn diagram. Only, rather than two circles that overlap where they have common attributes, think of SBA lending policy as one big circle. Instead of an overlap, a bank can define what they will or will not do with an SBA guarantee. Therefore, it’s a circle within a circle; or maybe a square in a circle. Rarely have I seen a bank policy that completely overlaps the SBA’s.
For instance, once upon a time I worked for a bank that looked down their noses at assisted living facilities and nursing homes. It was typical Banker Speak. “We don’t want to put your Grandmother or Grandfather on the street if we foreclose.” (Could be they were simply worried that it could lead to senior staff taking on bed pan duty!)
The point being, just because the SBA says something is eligible doesn’t mean it’s an arranged marriage for the bank.
At the end of the day each lender has the privilege of framing out their own SBA policy. They do that under an umbrella called “prudent lending.” I’ve seen banks that require cash flow coverage at 1.5 times debt — and others that approve loans at less than 100% coverage. (We had really good parties at Lehman Brothers — sigh.) So remember:
Lenders: Just because borrowers tell you the SBA says you can, doesn’t mean you have to do it.
Borrowers: You might want to get a second opinion on that answer from your bank … or just send me the deal — I’ve talked lots of borrowers out of trees. And the one thing I know, cats scratch less.
Namaste…..grasshopper.
Not All SBA Lenders Are Created Equal.
Receive The SBA Guru Blog