Opinion: How new SBA requirements can help your startup

Christopher Buschjost

Cory Coale

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Since the U.S. Small Business Administration announced updated requirements for its popular 7(a) and 504 loan guarantee programs on April 28, some national media reports have repeated the same narrative: Because SBA tightened the rules for lending and qualifying, it just got harder for potential borrowers to secure an SBA loan.

From our perspective, there’s a bigger story to tell. Simply put, the prevailing interpretation doesn’t account for an important truth in SBA lending: from startups to succession plans, your lender wants to make your loan.

SBA did tighten the rules, and on paper the challenges do exist. However, the new requirements also provide helpful clarity around SBA lending by eliminating gray areas that could (and sometimes did) translate into more risk for financial institutions. Banks can now be more confident when facilitating SBA loans because the rules are more defined – and that aids our efforts to match potential borrowers with the right loan for their needs. In fact, the new clarity seems to be paying off industry wide as the SBA 7(a) program continues to see rapid growth through another historic year, according to a July assessment from the National Association on Government Guaranteed Lenders.

Despite changes to the SBA lending process, the best aspects of an SBA loan remain the same. They’re still flexible and customizable, can still offer better terms and amortization and continue to be a great opportunity for businesses that might not qualify for a traditional loan. In our experience, most for-profit businesses in the Springfield area will likely still qualify for an SBA loan.

We think that puts potential borrowers who are exploring financing options for their new business in a great position to be matched with the best loan for their goals.

To get started, look for a lender who prioritizes communication and begins with a conversation about your goals – including those beyond opening your business. Tell them what’s important to you, keeping in mind that the relationship between a business and a lender is a long-term partnership and that the right lender can help you secure your first loan while also considering the lending options and financing you might need in the future. In other words, choose a lender that will help you get financing right the first time by looking ahead to a successful change of ownership or retirement from day one.

It’s equally important to seek out an experienced SBA lender who understands the rules and nuances of the program. They will have exposure to almost every situation, potential outcome and possible pitfall in the complex SBA application and approval process, saving you from unnecessary frustration by providing a streamlined and knowledgeable SBA experience. An active SBA lender will also have seen many different transaction types – from a variety of angles across varying levels of success – and will often be able to ask questions based on the insights that experience provides.

Finally, consider your potential lender’s connection with the community in which your business will operate. Community banks that are staffed and led by members of that same local community generally have more granular knowledge and nuanced understandings of all the things that could impact your business’s success and viability, such as the local economy, histories, values and traditions that can affect day-to-day business operations. The best lenders will apply that extensive knowledge to fund a variety of local businesses, support community initiatives and supply banking products and services they know their customers need. They’ll also pair their knowledge with their expertise in government guaranteed loans like SBA – including the loan process, terms, availability and options – to match the right product with your business needs.

From there, your lender can still structure terms and repayments, lower your upfront out-of-pocket expenses by including any fees associated with your SBA loan in your project costs and make other potential adjustments to optimize financial conditions for your business and help create a better environment for growth specific to your goals. After all, SBA is still a loan program that exists largely for startups. With the right lender, these loans can almost always meet your business need.

Christopher Buschjost and Cory Coale are vice presidents and guaranteed lending directors at OakStar Bank. They can be reached at cbuschjost@oakstarbank.com and ccoale@oakstarbank.com.