From the CEO’s Desk is a new feature article series on the Biz2X business lending platform blog. Once a month our CEO, Rohit Arora, shares insights into different industry trends and more.
In the past, large banks have been hesitant to do SBA lending.
It’s time for that to change.
As SBA is digitizing their workflows and approval processes, they are becoming more attractive and practical for big banks to work with. Getting an SBA loan is faster than ever before. Through the CPA business funding portal, for example, we can approve borrowers in 48-72 hours for loans up to $450,000.
The biggest challenge that SBA has faced is the amount of documentation the agency has required from lenders. Common understanding in the industry is that SBA is still behind the eight ball in this regard. However, SBA has recently made some positive changes.
After COVID, SBA made a concerted effort to upgrade the back end of its system for approvals. With that, some practical changes occurred. For example, the application previously required everyone with a 20% stake or more in a business to be in the documentation. Now it’s everyone with a 50% stake or more in the business. By changing that requirement, SBA has saved time throughout the process, removing people from each step, such as who in the company requires background checks.
Additionally, in the name of streamlining, SBA got rid of their franchise rating requirements. The changes have given the power back to the lenders to make their decisions and avoid time-consuming processes.
Indeed, the SBA has significantly improved its technology, which is an important part of the equation. It’s imperative to recognize the benefits of SBA loans.
For example, SBA does not look to tie up the personal assets of the owner, but rather will work with business assets and cash flow. The SBA loan guarantee fee, which was up to 3% of the borrowed amount, is now gone, and repayments have a moratorium. These changes have helped small businesses continue to grow. Additionally, raising the maximum loan amount from $2 million to $25 million has provided more opportunity.
The securitization of SBA is another key benefit of processing SBA loans. SBA can securitize loans because the funding is backed by the government. This means that there is far less risk involved, and far more opportunity to make transactions.
What I foresee happening is that with the increased pressure on mid-size and larger banks to get more deposits, there will be an increased turn towards SBA lending. So, we will likely see the mid to large size banks start to offer SBA lending products.
Additionally, a lot of banks will have to reimagine their digital lending platform strategies. Doing SBA loans manually will
is no longer feasible.
The platform we’ve created here at Biz2X and our SBA lending platform is getting a lot of traction and providing plenty of opportunity for banks to shore up their processes and improve their technologies. It’s essential that banks keep up with the times.
With SBA lending is on the rise, it’s also essential that banks hop on board.
To learn more about SBA lending, talk to a Biz2X financing platform expert about your bank’s unique needs.