How Quickly Can I Close a SBA 7(a) Loan
This is the number one question asked by business owners and is the hardest question to answer honestly unless you are told “It depends on a lot of things”. If someone quotes a time period, it is usually between 30 days to over 4 months. The 30 day answer is most likely an over promise but it depends when the clock starts ticking. The ‘over 4 months’ answer is most likely from a lender who is trying to convince you to use an alternate solution to an SBA 7(a) loan. The actual time period is usually somewhere in between.
Before we get into all those “things”, the good news is that you can control most of the “things” by taking a proactive approach rather than a reactive one to closing an SBA 7(a) loan. So what are some of the “a lot of things”?
- Properly Preparing
- What Costs You Want to Finance
- Getting Commitment from Your Trusted Advisors
- Finding the Right SBA 7(a) Lender for You
- Responding to the Lender’s Requests ASAP
- Working with your SBA 7(a) Lender to Determine Bottlenecks Upfront
You will need to gather certain documentation and determine what costs you want to finance. More importantly, you will need to mentally prepare yourself for the SBA loan process, which is rarely, if ever, discussed.
Why is it important for you to mentally prepare for the SBA loan process? Your success is attributable to breaking the rules to find a new or better way to provide a product or service. Or you have left or plan to leave the corporate world to purchase or start your own business. In either case, you want to take control of your destiny and do it your way. To close your loan as quickly as possible, you will need to follow the rules and do it the SBA 7(a) Lender’s way. One of the major reasons for delay in closing an SBA 7(a) loan is the business owner is fighting the process and request for documents.
What Costs You Want to Finance
If you are using loan funds to purchase a business, you will need to order a business valuation. If you are purchasing, constructing, or refinancing commercial real estate, you will need to order an appraisal and an environmental report. These reports can take anywhere from a week to 4 weeks and are handled by a company separate from the lender. For construction or major renovation of a stand-alone building, you will also need to have your building permits before closing.
Getting Commitment from Your Trusted Advisors
Many delays in closings are a result of a business owner’s accountant, lawyer, insurance agents, and other trusted advisors that are slow in responding or providing the needed documentation. When these trusted advisors are more engaged and committed to helping you in the process, closing will happen quicker.
Finding the Right SBA 7(a) Lender for You
If all SBA 7(a) Lenders must follow the same rules, shouldn’t the lowest rate lender be the right one for me? No. There are two reasons why. First, each SBA 7(a) lender has its own credit criteria for approving loans. Some lenders might only provide loans to finance real estate. Some lenders might not finance certain industries. Some might not finance construction projects. Some might not finance startup businesses or business acquisitions. It is important to find out the credit approval requirements before going through the formal underwriting process. Second, SBA 7(a) lenders have different processes for approving and closing their loans and may or may not have dedicated departments to process these specialized loans. You should understand the SBA 7(a) lender's process, experience, and what assistance they will provide you.
Responding to the Lender’s Requests ASAP
Every day that goes by without responding to a lender’s request for information delays the closing of your loan. With SBA lending, there are many if this and then that’s. While SBA 7(a) lenders are waiting for answers, they are unable to complete certain tasks and/or make certain decisions on how to proceed. Also, many times, the information provided by you causes the need for more information. The best advice is never to think you are done providing information to a SBA 7(a) lender until you are at the closing table.
Working with your SBA 7(a) to Determine Bottlenecks Upfront
Many of the bottlenecks to closing are common to almost all SBA 7(a) loans. These include having to order appraisals, business valuations, and/or environmental reports along with surveys and getting life insurance approved and collaterally assigned to the loan. There are just as many bottlenecks that come up because business owners don’t properly disclose certain items. Some examples are lawsuits, past due taxes or tax payment plans, not filing taxes, undisclosed loans, undisclosed owners, and changes in project costs. It would be impossible to name them all. The best way to help mitigate bottlenecks is to make sure to tell your lender the good, the bad, and the ugly whether you think it has a bearing on the financing or not. It is highly likely your lender will discover it somewhere in the process (usually during the final part of closing) and it could seriously jeopardize the timing of your closing or the ability to close at all.
Addressing these “things” will greatly increase the chances of closing your loan within 60 days (which is from the time the loan is submitted to underwriting.) You should also realize that unforeseen issues do arise which can delay closing. If you have addressed these “things”, it is more likely the issue will be resolved in a timely manner so that your closing will not be delayed too long.