How an SBA Loan Works For CFI Client

Posted: July 20, 2011 in Business, Business Financing

How an SBA Loan Works

I will not pretend to be an expert on all the intricacies and rules.  The SBA has a number of programs, offering loans of different lengths of time and for different purposes.  The SBA has programs for both revolving lines of credit as well as standard 10-15 year loans.  Each of these programs has different under-writing criteria, fees, and limitations, which a banker or a commercial finance advisor  will have to explain to you.  Most SBA loans, including one of my clients, fall under the section 7(a) program.

As stated in the intro, an SBA 7(a) loan actually is issued by a bank, but to SBA underwriting criteria and with an SBA guarantee.  The SBA only guarantees a portion of the loan, something like 50-75% depending on the exact loan type, with the bank taking the rest of the risk.  These loans are issued at a floating rate of prime plus a percentage, and the SBA has rules that caps the rates as well as fees the bank can charge.  The SBA charges a substantial fee, in the 2-3% of total loan value, up front to the borrower for the guarantee.

Choosing the Bank is Critical

From the section above, it should be obvious that you should strongly consider working through a bank that has the preferred lender status with the SBA.  Note that having or not having this status does not necessarily correlate with bank size.  In previous years, The “expert” my client was hooked up with at Bank of America (client main bank) was useless, and told my client in so many words that it would be impossible for him to ever get an SBA loan.  He ended up getting a line of credit. However, a few years later the client came to Commerce Financial Inc and we went through a prefer lender or PLP. PLP had the whole process automated, and when combined with a very knowledgeable banker on the front end named Jon Cosentino here in Albany, the process was as smooth as silk and very, very fast.  In fact, my client got the whole loan done in less time than it took B of A two years ago to do his line of credit.

If interested in SBA loans, please visit our website for more information at


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