If you are in the market to buy a business, you’ve likely heard about SBA lenders. These banks work to secure loans for small business buyers with the backing of the Small Business Administration. While working with an SBA lender may sound like a great opportunity, you may not get what you bargained for in the end. Not all SBA lenders are bad—at Sigma, we work with a few great banks—but not all SBA lenders are created equal, and not all of them are being completely honest with you. If you’ve been promised a loan from an SBA lender, it’s wise to be wary of the actual outcome. Consider the following to learn more about the problems with some SBA lenders.
Business Development Officers, or BDOs, work for the banks. They are salesmen, whose job is to form relationships with prospective buyers and submit loans to the bank. It is important to note, however, that these BDOs are not involved in the processing or approval of the loans they submit. They are often evaluated only on the numbers of loans they submit, and therefore, they are often not concerned with whether or not your loan will eventually be approved.
In fact, despite what these BDOs may tell you, they often don’t know if your loan will be approved by the SBA lender. One reason is they do not make it a practice to stay up to date on the requirements of their banks or the Small Business Administration. The SBA’s Standard Operating Procedures, which describes the types of deals they will and will not guarantee is over 350 pages. Most BDO’s don’t take the time to read it, and the banks that employ them may not train them on these details either.
In addition to the Standard Operating Procedures issued by the SBA, individual lenders also have requirements for these loan applications. While some may be prudent financial requirements, others are much more arbitrary. One bank, for instance, requires that the business you are looking to purchase has good Google reviews in order for you to secure financing. These individual requirements may or may not be considered by your BDO before he assures you he can get the loan done. We recently worked with a buyer who was told by three different banks that he would be approved for a loan. The buyer ended up paying cash for the business, because, despite what he was told by three different banks, he was unable to secure financing.
Unlike Business Development Officers, who are simply focused on submitting a loan to the bank, business brokers, like Sigma, are an advocate for the prospective buyer. We don’t want to just see a loan submitted, we want to see a deal closed. We work hard to vet both SBA lenders and BDOs to determine whether they truly know a loan will be approved. In many instances, we will even work with more than one well-vetted bank, so you, as the buyer, have options. Don’t be fooled by the BDOs that provide false hope for your business financing. Work with an experienced M&A professional, whose solitary goal is to close the deal for you.