Although it’s easier for many small business owners to qualify for SBA loans (thanks to their increased flexibility and favorability), financial institutions face a much bigger challenge when trying to enter the SBA lending market.
Whether you’re new to SBA lending, have processed a handful of SBA loans, or have been an active participant, partnering with a highly experienced lender service provider like SBA Complete is one of the quickest ways to bring your financial institution to a profitable level of SBA lending.
Not all SBA Lenders are Created Equal
The first thing you’ve got to understand about the SBA lending market is that it’s not a level playing field.
To service small businesses more efficiently, the SBA has created two categories of lender programs–the Preferred Lender Program (PLP) and the General Program (GP). All prospective lenders must first be approved by the SBA to qualify as a partner.
SBA Preferred Lender Program (PLP)
PLP status is the most desirable accreditation a lender can receive. PLP lenders can offer the full range of SBA loan products, and have the authority to make final credit decisions, which simplifies and speeds up the loan approval process for everyone involved.
To earn PLP designation, you must be adept at servicing and processing SBA loans and display a thorough understanding of SBA lending policies and procedures. Unfortunately, PLP status tends to be reserved for high-volume SBA lenders.
Another benefit of PLP accreditation is that the SBA and many small business advisors encourage small business owners to seek out PLP lenders when applying for a loan.
Clearly, it’s quite advantageous to hold a PLP designation. Faster loan approvals mean happier customers, more sales of these high-margin loan products, and additional liquidity to grow your business.
Before granting PLP status, SBA will review the following:
- Your ability to process, close, service, and liquidate loans
- Your ability to develop and analyze complete loan packages
- Your institution’s SBA loan performance. This includes factors like the organization’s overall risk rating, default rates, purchase rates, loss rates, on-site reviews, loan volume, and more. These are determined at the SBA’s discretion.
Although SBA lenders must be nominated for PLP status by their local SBA field office, you can request for your local field office to consider you for PLP status. Recommendations are forwarded to the SBA centralized loan processing center before final decisions are made by those higher up the SBA food chain.
SBA General Program (GP)
GPs are approved by the SBA to make loans (typically only 7(a) loans). They can submit applications directly to the SBA for review and receive guaranties on approved loans. The SBA checks each borrower’s eligibility and reviews all lender applications to make sure each loan is sufficiently underwritten to meet SBA credit standards.GP lenders tend to be less active than PLPs. Among other things, GPs need to be in good standing with both their state