Streamline Access to Capital: How Preferred Lenders Expedite SBA Loan Process

The United States Small Business Administration (SBA) guarantees loans to empower small business owners with essential capital. In 2023, over 63,000 loans were issued to small business owners for working capital and expansion needs. Despite the attractive advantages of these loans, misunderstandings about their eligibility criteria, timing for approval, and application process can sometimes exist.

For this reason, we spoke with Jeff Kleinschmidt, Senior Vice President and SBA Group Sales Manager for Old National Bank. As a Preferred Lender by the SBA, Old National Bank offers extensive experience to help guide business owners.  

How SBA Loans Differ from Conventional Business Loans

When you apply for and take out a conventional business loan, you are borrowing directly with a lender. If you qualify, the financial institution will set the terms, lend you the money, and assume losses in the event of default. To offset this risk, most require you to pledge a significant amount of collateral, such as real estate, vehicles, equipment, inventory, cash and other personal assets.

SBA loans, on the other hand, are partially guaranteed by the government, which makes them much more flexible than their conventional counterparts. Amortization tends to be longer, the down payment or equity injection requirements are lower, and the payment terms more elastic. 

When looking at the difference, many borrowers - especially when they have a collateral shortfall - are compelled to go with the SBA loan. 

“A lack of collateral is not a reason to decline the loan,” says Kleinschmidt. We're looking for experience and we're looking for cash flow.” 

The most popular SBA loan, and a specialty of Old National Bank, is the SBA 7(a) loan program. The bank provides the funds, and the SBA guarantees 75 percent of the loan.

“The money can be used for any valid business purpose, and the borrower likely will not ever speak or communicate with the SBA directly,” says Kleinschmidt. “We have delegated authority to originate, underwrite, approve and close the loan as part of our Preferred Lender status.” 

Closing the loan is relatively fast, too. At Old National Bank, for example, the average funding from the receipt of proposal is 60 days or fewer.

Where and How to Get the Best SBA Loan

Since SBA loans are sponsored by the government, the application process requires more documents than conventional bank loans. However, working with the right lender can alleviate concerns about complexity. 

The days of SBA loans as a last resort for funding are over. 

“Since the great recession, SBA loan volumes have grown tremendously across the country in popularity, primarily due to the Preferred Lender program,” says Kleinschmidt. “Old National Bank has an SBA team and we specialize in guiding our clients through this process efficiently to avoid frustration which can exist when left to do things on your own.”

What you can get with an SBA 7(a) is more than worth the effort. Loans of up to $5 million are available for each borrower, and according to Kleinschmidt, the interest rates are only slightly higher than those on conventional commercial loans. 

If you have had credit issues, such as a history of late payments, the lender will take a practical approach to approval. SBA loans do not demand a specific minimum credit score for eligibility. Instead, the bank will analyze what led to the problems and obtain supporting paperwork as needed. Their aim is to help you get the financing, not shut you out of it. 

In fact, says Kleinschmidt, the SBA is now willing to fund start-ups and not only established ventures. If you’re just launching, relevant industry ownership or experience can suffice.

What to do Before Pursuing an SBA Loan

As a potential SBA loan borrower, set the stage for effective communication. Be prepared to explain and demonstrate why you need the funds. For example, you may want a certain sum to expand your business, purchase equipment to produce more revenue or acquire or build a larger building. Prepare a business plan or background piece with these details.

You will also need to show how you intend to repay the loan, with sufficient cash flow to support the payments. Kleinschmidt suggests compiling your three most recent business tax returns (if you are a start-up that won’t be necessary) and the personal tax returns from all owners. 

If you are at all confused or feel overwhelmed at any stage, turn to the bank for assistance. “At Old National Bank we have a concise SBA pre-qualification package,” says Kleinschmidt. “It includes a checklist of items we have found are necessary for us to prequalify a loan applicant for an SBA loan.”

Finally, be sure to borrow from a reputable financial institution. To know, ask two key questions: 

• Are you an SBA Preferred Lender? Make this your requirement, since it will demonstrate the lender’s level of expertise and knowledge of the parameters surrounding SBA loans. Preferred Lender status means they have closed a volume of loans with great credit experience and have very low loan losses. The SBA’s Lender Match tool can help you begin your search. 
• Are you a fixed rate lender or variable rate lender? Although the interest rate may be lower with a variable rate loan, it can increase when the prime rate goes up. For maximum stability, you may want a fixed rate loan, so make sure the lender offers it. Not all do. “At Old National, we offer competitive fixed rate SBA loans, so that provides us with a distinct advantage over some of our competitors,” says Kleinschmidt.

When you work with a bank that provides excellent financing and guides you along the way, you can concentrate on what you do best: operate and grow your business. A top tier SBA Preferred Lender can be one of your greatest assets. Connect with an Old National banker today to discuss your business loan options.