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5 Replies Last post: May 20, 2009 8:44 AM by Fighter1

If bank risk is removed with an SBA loan, why so difficult?

May 19, 2009 10:32 AM

Fighter1 17 posts since
May 14, 2009

If I understand correctly, a bank's risk on SBA loans is mitigated by the backing of the federal government.

If that is so, why is it so difficult for SBA loans to get financed? Especially for those preferred lenders who can approve the application on their own?

Tags: alternate_financing_options, buisness, business, business_credit, capital, cash_flow, collateral, credit, financing, financing_customers, growth, investment_loan, investor, line_of_credit, loan, loan_to_purchase_property, loan_to_take_over_business, loans, money, personal_credit, small_business_loan, start, start-up, up, working Report as inappropriate

wilfin 106 posts since
Feb 22, 2009

1. Re: If bank risk is removed with an SBA loan, why so difficult? May 19, 2009 12:39 PM

Fighter, that's a pretty broad question and could be due to a number of issues. A general
short answer : the SBA guaranty mitigates the bank's risk, but it's only a partial mitigant.
There is still risk after the guaranty, ie SBA has historically guaranteed 75% of a 7a loan
so banks are still on the hook for 25%. Therefore the deal has to make sense.

Hope this helps some.

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phanio 483 posts since
Apr 7, 2009

2. Re: If bank risk is removed with an SBA loan, why so difficult? May 19, 2009 12:39 PM

Because if a bank has a lot of defaults on SBA loans - the SBA will not back the bank anymore - nothing worse to your shareholders or public setiment then to have the SBA (Federal Government) say that your bank in not longer safe for lending. Further, it still costs the bank to take collateral and liquidate it as well as the fees to the SBA for each default.

What issues are you having in getting a loan? Maybe we can help you overcome your issues.

Business Money Today

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Fighter1 17 posts since
May 14, 2009

3. Re: If bank risk is removed with an SBA loan, why so difficult? May 19, 2009 1:50 PM

in response to: phanio

I can see that. I'm just noticing the numerous posts commenting on the difficulty of acquiring SBA loans. I just spoke with BofA and Indiana Bank and Trust.

BofA is not doing SBA loans for startups unless a physicians office or maybe a franchise. They want a 2 year business.

IBT isn't funding startups.

Is just does not jive with what has been coming out of Washington. Nothing new, of course, in that vein.

Yet, whether a bank is running SBA loand or not, the project still has to make sense.

Is it that so many people are just not prepared and /or qualified to be asking for funding at this point in their professional/credit lives?

Thx.

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NoBullFunding 278 posts since
Oct 6, 2008

4. Re: If bank risk is removed with an SBA loan, why so difficult? May 19, 2009 11:01 PM

in response to: Fighter1

Fighter - the other poster is correct, only part of the risk is removed, so banks still stand to lose money if a loan goes bad. The other part is that the SBA guaranty is NOT automatically paid. Lenders must go back to the SBA to prove that they did everything correct when underwriting a loan, and if they didn't the SBA will come back with a "repair" which basically means they'll reimburse the lender for something less than the 75%. So unfortunately its not a simple as picking up the phone and saying "hey SBA, this business failed, pay me".

Another reason that banks have put stringent guidelines on SBA loans is that unlike the hayday of credit, there is nobody out there who has any interest in purchasing the unguaranteed portion (banks used to sell that part of the loan to other banks and investors). Now that banks have to hold the unsecured portion, they want to make sure there is lots of collateral, lots of historical cash flow, or both.

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Fighter1 17 posts since
May 14, 2009

5. Re: If bank risk is removed with an SBA loan, why so difficult? May 20, 2009 9:00 AM

in response to: NoBullFunding

Thx. I have a better understanding of the process now.

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If bank risk is removed with an SBA loan, why so difficult?

May 19, 2009 10:32 AM

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