I am a very strong supporter of SBA loans.  Over the years the SBA has guaranteed billions of dollars in loans to help small businesses.  But because of the government shutdown the SBA is one of the agencies shuttered (and not likely to be called back) which means that no loans submitted to SBA by banks for the guarantee are going to be dealt with and no loans approved and waiting for SBA approval will be processed..

SBA loans have two steps.  The first is the approval by the lender.  Banks underwrite requests for SBA loans almost exactly the way that they underwrite regular loan requests as though the SBA didn’t exist.  The only difference is that the SBA has broader credit guidelines – things like longer terms, lower debt or collateral coverage for example, so a bank, if they are interested in pursuing an SBA guarantee can be a little more aggressive – emphasize little because banks don’t want to get too far away from their regular (tight) credit guidelines.  SBA’s credit guidelines are not that different from banks.  They are just less restrictive.  So the first step in the process is to get the loan approved by the bank – a process that has its own seemingly never-ending time line SBA guarantee or not.

Then, if the bank approves the loan, it submits it to SBA for the guarantee.  Banks that do a lot of SBA loans can become Preferred Lenders (PLP) meaning that they can put the SBA guarantee on the loan themselves which saves a great deal of time.  Non-PLP lenders have to actually submit the loan to SBA for underwriting by SBA.  Here is where the process starts to slow down.  Even PLP lenders have to get a loan number, which means somebody has to look at it, but now there is nobody to look at it.  And once the number is attached, closing documents are sent to the lender.  No one in that department either. 

But longer term –  after the shutdown ends, the SBA is going to have to deal with the huge backlog of applications already in for approval, and that is even before the banks start submitting loans that are backed up in their pipeline.  It’s going to be a mess for a good many months.  So if you’re thinking about applying for an SBA loan or actually have one approved by the bank waiting for SBA approval, if it’s something you can’t or don’t want to put off but so long, you should probably start considering a Plan B.



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