September 25, 2018
By Bob Coleman
Editor, SBA Hot Topic Tuesday
SBA Hot Topic Tuesday — SBA Loan Packaging Benchmarks
The common theme in responses to our industry survey of how long it takes a lender to package an SBA 7(a) and 504 loan is “it depends.”
Readers correctly pointed out that there is no correlation between the amount of the loan and the time required to package the SBA loan.
Add to the industry confusion is it is unclear in the SOP of what exactly are the permissible components a lender may charge for a “loan package.”
However, there is a glimmer of an average range of hours required to prepare an “average” loan package from the survey.
I took your 179 responses and created a median range of hours, eliminating the high and low outliers.
The purpose of the survey is to give you a base from where to start. Affiliates, multiple guarantors, construction, equity injection verification, debt refi verification, 912 issues, multiple asset purchases, multiple collateral liens, are a few of the labor-intensive items that add time in the preparation of the SBA loan packaging.
On average, how many hours does it take to complete an average SBA loan package for the following loan amounts?
$50,000 — 4 to 10 hours
$350,000 — 5 to 15 hours
$1 million — 8 to 20 hours
Over $3 million — 10 to 30 hours
The number of hours it takes to package a loan (accurately and prudently) has nothing to do with loan amount and has everything to do with complexity of the project, borrower/guarantor type/amount, collateral type/amount, etc. A good lender is not going to rush through a small loan, just because it’s a small loan, same as a good lender is going to take longer on a larger loan, just because it’s a larger loan
All of the above answers are dependent on the number of affiliates, if any. There is no one size fits all answer in SBA Lending, you should know that.
All deals should be the same – unless there is is something unusual – which by the nature of SBA lending, there always is!
It is not necessary the loan size as it is number of entities and guarantors and if there are 912 issues etc that will determine how long it will take to package the loan
Lender is taking for collateral. What does Coleman consider part of Packaging? Initial contact to funding? The size of the loan doesn’t mean to much.
It is not the dollar amount of the loan that determines the time to prepare. It is the complexity. Debt Refinance, Multiple Affiliates, Prior Gov. Debt, Number of Guarantors, so on and so on.
Now they will have to clearly define ‘packaging’ and what is allowed to be considered a packaging activity that can, and should be, billed to the customer. It is my opinion that this rule will only increase the costs to the borrower. If lenders truly tracked the hours it takes to package than the packaging fees will look as outlandish/inflated as a bill from an attorney. In my experience lenders shied away from hourly fees because of the scrutiny they would receive from SBA because it would nearly always go above the industry standard of 1% of the loan amount.
This is practically impossible to figure out. Even hourly processors get interrupted multiple times a day on different deals in different stages of the process. The loan amount doesn’t always determine how complex a deal is (start-ups, multiple pieces of collateral, multiple principals, multiple affiliates, multiple franchises).
The dollar value of the loan is rarely the driving factor of how long packaging takes. In my experience, the amount of time it takes to package a loan depends on the complexity of a loan (i.e. number of guarantors/affiliates, if there is a construction component, the collateral components, if refinancing is involved, etc.). I’ve had several loans under $350,000 that take considerable more time to package compared to loans over $1 million. I don’t think the loan amount should justify the packaging fee but rather the components of the loan.
The loan amount doesn’t make any difference. The difference in the amount of time it takes to package a loan depends on many factors (i.e. the number of borrowers, partners/guarantors, affiliate companies, amount and type of collateral being taken, etc.) and the complexity of the overall deal. To say it takes “X” amount of hours to package a $1million loan is very premature.
All of the above estimates are averages but will ALWAYS depend on the complexity of the deal (# of borrowers, co-borrowers, principals, use of proceeds and documentation needed to support, etc.), experience of the borrower, submission method and what services are included in “packaging”, which can be a different definition to different people.
Loan amounts do not necessarily dictate how long it will take to package a loan. There may be other complexities of the project or package that cause additional time needed to conclude packaging. “Packaging” may also include different processes or services from one bank/institution to the next or even one customer to the next, thus causing an apples to oranges comparison. Our fees are based on the complexity of the actual services provided and the customer relationship history.
The time it takes to package a loan isn’t really dependent on the dollar amount. I’ve had smaller loans take longer to package because there were more guarantors and affiliates, and therefore more forms to complete. Additionally, some smaller loans are often made to less sophisticated borrowers and it takes more “hand holding” during the packaging process. Larger loans tend to go to more sophisticated borrowers who typically have their paperwork in order, thus making it easier / more efficient to package.
SBA needs to just allow a standardized fee up to based the on loan size. Loans under $350,000, maximum packaging fee is $1,500, Loans over $350,000 maximum is $2,500. It is very insignificant considering the size of the guarantee fee the borrowers pay.
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