How to choose an SBA lender, and the questions that separate them

Same program, same rules, wildly different experiences. The variation is not in the SBA. It is in the lender.

Delegated authority is the first question

Lenders with Preferred Lender Program status make the credit decision themselves. The loan gets a number without the SBA reviewing the credit. Lenders without it submit the file to an SBA processing center, adding a second decision-maker and calendar time.

Most 7(a) decisions are made this way — by the lender, under delegated authority, not by the SBA. When someone tells you the SBA is holding things up, ask whether they are delegated. On a delegated file the answer is usually no.

Delegation is not automatically better for you. A non-delegated lender that knows your industry can beat a delegated one that does not. But you should know which you are dealing with, because it changes who you are actually persuading.

Deal-type experience beats everything except eligibility

Ask how many loans like yours they closed last year. Like yours means the same structure, not just the same program: a business acquisition with goodwill, a ground-up construction project, an owner-occupied purchase, a working capital request in your industry.

A lender doing its first acquisition in your sector will learn on your file, at your expense in weeks.

The questions to ask every lender, in writing

1. Do you hold delegated authority, and will this loan be processed under it?
2. How many loans of this type and size did you close in the last twelve months?
3. What is your current time from complete package to closing, and what usually causes the delays?
4. What base rate and spread are you quoting, fixed or variable, and how often does it reset?
5. What fees are you charging, and which costs are third-party pass-throughs?
6. What collateral will you require, and will that include a lien on my home?
7. Who underwrites and who closes — in-house, or outsourced?
8. Do you service the loan yourself after closing, and who will be my contact?
9. What in my file do you expect to be the problem?

That last question is the most useful one on the list. A lender that answers it specifically has read your file. A lender that says everything looks great has not.

On brokers and packagers

A broker can be genuinely useful, particularly if you do not know which lenders are active in your niche. A broker cannot approve anything, cannot speed up an appraisal, and cannot make an ineligible business eligible.

Anyone compensated for helping you get the loan must be disclosed on the SBA's fee disclosure form, with the services described. Ask to see it. Be wary of a substantial payment demanded before any work is done, and check the current rules at sba.gov. If a broker will not tell you which lender your file is going to, you have no way to know whether it was shopped or sent to whoever pays the most.

Bank, credit union, or non-bank SBA lender

All three exist. Banks and credit unions may cross-sell deposits and treasury services and may care about the local relationship. Non-bank lenders licensed by the SBA often specialize by industry or deal type and can be faster within their niche.

There is no category answer. There is only whether this particular institution does this particular deal well, and the questions above are how you find out.

Then compare offers on the whole package

Rate, fees, maturity, injection required, collateral, prepayment terms, and the honest timeline. Two SBA offers can differ on every one of those. The rate is usually the smallest difference of the set.

What the rate difference is actually worth

The rate is bounded by the program ceiling, so the spread between two SBA offers is usually narrow. Put a number on it before you let it decide.

That is real money and it is worth a phone call. It is also less than a single month's delay costs on most acquisitions, less than a seller's extension fee, and considerably less than the cost of a lender who mishandles an eligibility issue and forces you to restart with someone else in month four. Rank the questions above ahead of the half point, then take the half point from whichever lender survives them.

Who owns and services the loan afterwards

Two things happen after closing that nobody raises before it.

Neither answer is disqualifying. Both matter more in year three than the rate does, because year three is when you need something that requires a human decision.

If your lender is not delegated

It is not a reason to walk away, but it changes what you should ask for.

Ask how long the SBA processing centre is currently taking on their submissions, whether they have had files returned for corrections recently and why, and who at their end handles the back-and-forth with the centre. A non-delegated lender that submits clean files and has a person who owns the process can be quicker than a delegated lender learning your deal type. A non-delegated lender that cannot answer those questions is adding a month you did not price.