March 4, 2015
By Bob Coleman
Editor, Coleman Report Morning Brief
You, the lender decides the amount of the small SBA 7(a) loan that can be approved with SBA’s credit score.
That is the takeaway I got from the Georgia SBA Lender’s conference last week in Augusta.
This week’s inaugural Coleman C-Level Small Business Lending Report quickly recaps what you need to do as a micro SBA lender.
SBA continues to push lenders to approve more smaller loans. The agency understands the cost to the lender cost in underwriting smaller loans, thus relaxed underwriting standards.
A quick recap:
SBA defines a small 7(a) loan as less than $350,000.
These small loans may be approved with SBA’s credit scoring system.
You enter basic borrower information into E-Tran and a credit score will be issued. If it is above the minimum standard, you may then approve the loan with reduced credit analysis.
An approved credit score assumes repayment ability of the business.
The “streamlined “SBA credit memo requirements from your underwriter is:
1) Brief description of the management and the business.
2) Personal financial statements required.
3) Obtain IRS Form 4506 confirmations.
4) Analysis that equity and proforma debt-to-worth ratios are “acceptable.”
5) Proper verification of equity injection.
6) List of collateral
7) Analysis of how affiliated companies impact repayment ability.
Now for the C-Suite takeaways:
You may choose a lower threshold amount to start processing loans with a small business credit score in order to feel comfortable with the system — say $50,000. (Shout out to SBA Associate Administrator Ann Marie Melhum for this suggestion.)
You may also choose to only process loans with a credit score higher than SBA’s minimum, currently at 140.
Remember, these are SBA’s minimum requirements. You are the final arbiter of whether you will accept the “streamlined” process, or require a full-blown financial analysis.
Feedback welcome at email@example.com