The SBA does not lend money!
Many people believe that the SBA itself lends money. It does not. It merely guarantees 75% of the loan that the lender is giving. This “insurance policy” lowers the risk for the lending institution, and in exchange for that guarantee, the lender is required to following SBA guidelines.
The SBA does not underwrite loans
Many borrowers are under the impression that their loan is sent to the SBA for underwriting. In most cases, it is not. It is underwritten by their lending institution. It simply has to follow SBA guidelines, and in return, it receives a guarantee on that loan.
Real estate collateral may be required
Generally, if a borrower has 20% or more equity in their home, the SBA will require the lending institution to use that property as collateral. They accomplish this by placing a lien on the property. Also, if the borrower does not own property, it does not affect the eligibility of the borrower.
Life insurance is required
The reasoning is that, in case of a borrower’s death, this policy would pay off the SBA loan. The policy coverage must be in at least the amount of the loan. In leu of a new policy, a borrower can assign an existing policy to the lender.
The SBA requires plans and projections
As part of the application process, the SBA requires the borrower to provide plans and projections. On business acquisition loans, especially, this a vital part piece since it needs to covey what the borrower’s plans are for the business after acquisition and how those plans affect revenue and expenses.
We hope you find these 5 facts useful and informative. eCommerce Lending specializes in SBA backed financing for online business. If you are interested in getting an SBA loans, please take our pre-qualification assessment and schedule a call with our team.