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When it comes to managing your finances, there's a lot to know, and it seems as if things are changing every day! We love educating our customers, and that's why we maintain a thorough selection of stories and articles.

If All SBA Loans Are the Same, Does It Matter Where I Get Mine?

by Andrew Freter

Access to reliable and quick capital is one of the most important items, other than determination, in growing a business. Many business owners are faced with the task of finding a bank that will not only listen to them, but will help them get the loan or line of credit they need to grow. For many businesses a US Small Business Administration (SBA) loan is the answer.

Simply put, and SBA loan is a loan from a bank that is backed by the US SBA. This backing gives the bank a comfort factor in making a loan to a new or growing business. In order to make an SBA loan to a small business, the bank and company must follow a set of rules that are overseen by the SBA. All banks are required to follow the same set of rules (with one exception, but we will discuss that later). So, if all banks must do the same thing and follow the same rules does it really matter where you get your SBA loan? In short, yes – for three very important reasons.

First and foremost (and this is the one exception to the rule) is a thing called Preferred Status. This is a credential a bank can have where the SBA says the bank is a Preferred Lender in the SBA program. The US SBA has reviewed the policies and procedures of the bank and a Preferred Bank has the ability to make, close, and service SBA loans without going to the SBA first for clearance. Not all banks have Preferred Status and those without must wait for the SBA to make a decision before proceeding with your loan. Simply, the rules that banks and small business have to follow are all the same, but when you work with a Preferred Bank the process is easier and faster.

The second thing to consider is how your bank handles their SBA loans. Similar to a home mortgage, there is a very active secondary market for SBA loans. A bank can close an SBA loan on Monday and by the following Monday it is sold to an investor (usually a Wall Street type investor). When the bank sells the loan, they still service the loan, but they have no authority to make any changes. Any changes that have to be made need approval from the investor first. The process not only takes time, but the investor can also say no. Other banks hold the SBA loans for the life of the loan and do not sell them, meaning that if any changes need to be made down the line the bank is the one to make that decision. This greatly speeds up the process. If a small business wants flexibility in their bank and loan it is important to take how the bank handles their SBA loans into consideration.

Lastly, but not any less important, is the expertise of the bank. As many small business owners know, an SBA loan requires a little extra paperwork. When you work with a bank that knows the ins and outs of SBA loans, they can help manage the paperwork to save you the headache and from doing duplicate work. Most banks these days know enough to make an SBA loan, but that does not guaranty they have the expertise to make the process easy. Talk to your bank and your lender and ask them about their industry training. You will find that a bank with the correct expertise will make getting your SBA loan that much easier.

SBA loans are a great tool that both small businesses and banks have at their disposal to help a small business get the access to capital that they need. While SBA loans all might seem the same, the bank you choose to do your SBA loan will drastically change how the process goes before and after loan approval. At PyraMax Bank we are proud to say we are a Preferred Lender, with staff that has received advanced SBA industry training, and that when you take out a loan with us it stays with us – not just for the first week – but for the life of the loan.


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