American small businesses are an essential part of the United States economy, being that nearly two out of every three new jobs are created by small companies. The U.S. currently has over 28 million small businesses operating for-profit and employ around half of the total U.S. workforce. To keep American small enterprises growing, these small companies need access to affordable capital. Oftentimes, these small businesses find themselves shut-out from traditional bank financing because they don’t meet their banks credit and capital requirements, the business firm hasn’t been in operation long enough to make the bank feel comfortable providing a loan, or because the small business doesn’t have sufficient cash-flow to service the loan. In fact, a 2013 study by the New York Federal Reserve of small business owners found that access to capital was the top concern of small business owners. Access to sufficient capital has been so difficult to secure that only 55% of profitable small businesses that apply for a loan actually receive funding.
SBA loans are a type of financing provided by large banks, small banks, community and and other commercial lenders that are partially/mostly guaranteed by the U.S. Small Business Administration (SBA). The SBA doesn’t actually loan money to small businesses, but instead encourage SBA lenders to loan money to companies by covering up to 90% of the lenders’ losses should the borrower default on the loan. By covering a large portion of the lenders’ losses, the SBA loan program helps encourages lenders to fund companies with affordable bank-rate financing because their risk is almost reduced or nearly non-existent.
What is an SBA Loan Broker?
SBA loan brokers and financing consultants will analyze the borrowers financial data, explain all the SBA loan programs and financing options available to the small firm, prepare an SBA loan package to submit to SBA lenders, and then find the right SBA lender to fund the small business. After finding the small business the right SBA lender to provide them financing, the SBA loan consultant will then work with the borrower to prepare all the documents and paperwork needed for full-underwriting by the lender. After that good SBA loan consulting experts will work with you from the beginning of the process until you are funded.
Why Use a SBA Loan Broker?
- SBA loan brokers are proficient in all the SBA loan programs — allowing you to focus on running your business, rather than researching the various programs.
- Good SBA loan consultants and brokers can analyze your business financials and offer expert advice as to which programs would be the best fit for your company.
- Qualified SBA business loan brokers have relationships with all of the SBA lenders. Many SBA lenders have concentrations in specific industries, as well as regions of the country. A good SBA broker can match you with the best lender for your needs.
- SBA loan experts can speed up the overall funding process by weeks or even months by streamlining the SBA lender matching, rather than applying one lender at a time.
Reasons You Should Not Use a SBA Loan Broker
If you feel comfortable navigating the SBA process on your own, then deciding not to use SBA loan consulting may make sense. Some SBA financing brokers will require an upfront packaging fee to prepare their SBA loan request. The problem is: you may be paying that fee without knowing if you are even SBA qualified, or without knowing if the SBA loan adviser has a sufficient network of lenders to properly-handle the situation. In fact, you have to keep in mind that small business lending is pretty much unregulated at the moment. And with the lack of regulation the number of poorly-informed (or ethically challenged) business loan brokers have increased. These brokers are usually more concerned with putting their own interests before those of their clients. What does that mean for the client: the broker steers the small business towards a high-rate and expensive merchant cash advance or other alternative loans rather than traditional financing. They are also much more lucrative for the broker (at the expense of the client). That is why making sure a SBA brokering expert has your best interest at heart is important. Talk to them about your situation, and see what they have to say. If they want to steer you toward high-rate financing from the beginning, run.