Small Business Administration (SBA) loan programs have become a critical source of funding for small and medium sized enterprises, which had difficulty in accessing to capital during the recession. Many small, community-based lenders, however, are not prepared to respond back to the needs of small businesses, in spite of many benefits that SBA loan programs have for the lenders. Bizulo.com offers SBA lending advisory and outsourced underwriting services for small financial institutions that will help them boost their SBA lending operations.

SBA loan programs can be ideal for small, community-based financial institutions primarily because of the SBA guaranty feature that can effectively mitigate potential credit risk of loans made to small businesses. The substantial coverage of exposure by the SBA guaranty, typically 75% for 7(a) term loans (85% for loans not more than $150,000) and 50% for Express loans, makes community-based lenders feel more comfortable to make SBA loans to small businesses.

SBA loan programs also offer flexible loan terms to the small businesses with limited burden of carrying debt. SBA 7(a) term loans may have 10-year loan term for such purposes as financing accounts receivable, inventory purchase, leasehold improvement, and business acquisition or restructure. SBA 7(a) term loans for financing business-purpose real estate or fixed assets can generally go up to 25 years. 504 loans for financing business-purpose real estate, machinery and equipment, or new construction can go up to 20 years.

These 10-year, 20-year, or 25-year term loans are seldom offered to small businesses through traditional commercial lending programs. This is a great selling point for the community-based lenders as the SBA loan programs are used as a business development tool.

Another great advantage of SBA loan programs for community banks is that, through SBA loan programs, they can fund loans larger than their regulatory lending limit. The SBA guaranteed portion is excluded from total risk exposure of loans. Therefore, community banks can technically make four times larger SBA 7(a) loans, with the 75% loan guaranty, than their legal lending limit, up to five million dollars which is the size limit of SBA 7(a) loans.

Moreover, perhaps the most lucrative characteristic of SBA 7(a) loan program is that lenders can sell the guaranteed portion of SBA 7(a) loans to a very active secondary market. By selling the SBA guaranteed portion, lenders can not only immediately recapture the funds utilized to make loans (equal to the guaranteed portion of loans sold less fees paid), but also make substantial premium income right away, plus annual loan servicing fee of 100 basis points over the life of loans.

Although SBA loan programs bring many benefits to the lenders as mentioned above, many small financial institutions are not active in offering SBA loan products. In fact, they are hesitant in expanding their SBA lending operations primarily because of the substantial costs of hiring and retaining experienced SBA lending personnel in place. To start an SBA lending operation, a financial institution needs at least an experienced SBA lending officer, SBA underwriter, and closer. What is critical for the lenders is to retain an officer well versed with SBA’s Standard Operating Procedures (SOP’s).

Some of the SBA lending and/or credit functions can even be outsourced, which may improve efficiency in the overall credit process. Lenders may consider outsourcing such functions as application prescreening, underwriting, compliance review, legal documentation, regulatory reporting, training, etc. Start-up or expanding SBA lending operations can utilize reliable outsourcing solutions to ensure adequate human resources are in place to achieve loan growth and risk management goals.

The consultants at Bizulo.com offer SBA Loan Underwriting and decision support services for community-based financial institutions, should there be needs for outsourcing such functions. As experts in commercial and SBA lending, they possess the knowledge and expertise needed to help community-based lenders build a successful SBA lending process

Source:http://www.businesswire.com/news/home/20101220005892/en/Firstsource-Signs-Three-Year-Outsourcing-Agreement-GENBAND