The SBA is one of the most vibrant sources of funds and tools for small business owners. Their lending programs, especially the 504 program, make it possible for all types of small businesses to secure needed funds to continue to grow their business. It takes many people to successfully secure and close an SBA loan. Knowing who they are and how they work together empowers both lenders and borrowers by helping them identify key partners and opportunities.
Player One: The Lender
The first player on the SBA field is the lender. The lender is the one to whom you typically go to when you want a loan. Banks, credit unions, and micro-lenders all fall under this umbrella. The lender covers 50% of the project cost. By committing to only 50% of the total amount, lenders can participate in larger projects they might not otherwise be able to and assume lower risks with better loan-to-value ratios. They are also allowed to facilitate the loan at their own rates and requirements, making it an attractive situation for them (not just for the borrower).
Player Two: Certified Development Corporation (CDC)
Certified Development Corporation, or CDC for short. The CDC is a private, non-profit whose purpose is to promote economic development within its community. The CDC gives out loans for 40% of the project cost (offsetting some of the lender’s and borrower’s funding obligation). They work on behalf of the SBA and operate as the direct liaison between the SBA and the other players.
Player Three: SBA Consultant
Often a third party consultant is brought on to facilitate the deal. Usually the consultant is secured by the borrower and acts on behalf of the borrower’s interests. An SBA Consultant is someone with ties to one or more CDCs and multiple lenders. They bring to the table knowledge of the intricate and ever-evolving process and requirements for qualifying for an SBA loan, a network of lenders and CDCs to help back the loan, and skills in project management and business finance.
Player Four: The Borrower
Of course in any loan transaction there must be a borrower. The borrower is the small business owner(s) who are seeking the funds, whether it’s for purchasing real estate, financing growth, or acquiring other fixed assets.
Of course there will be additional players depending on the transaction. If you’re acquiring real estate then a real estate agent or broker, Title Company, inspector, contractor, and other parties will be involved. For equipment and software a vendor may be involved. Be sure to educate yourself on every player, what their roles and functions are, so you can ensure that they fulfill their duties and execute a smooth transaction.
This article is part of our Small Business Loan Guide; check it out for expert tips and advice on loans.