Covid and SBA Lending




One of the side effects of Covid and the federal government's associated SBA loans to affected companies and investors has been a huge backlog in approval time required for any SBA-backed loans.  What used to take three to four months, now in reality takes a minimum of eight months in most cases, and in some cases over a year.  Obviously, sellers aren't wild about waiting over a year for a contract to close, so the option many investors are using is what's called a "bridge loan".  

When third-party financing is involved, such as an SBA loan, a bridge loan "bridges" the gap between the closing and permanent funding and is generally granted via a short-term conventional or personal bank loan at a higher interest rate than the anticipated final loan from the SBA.  Bridge loans can also be used to bridge the gap between the closing and approval of a standard conventional commercial loan.  When that is done, it's generally by acquiring a "hard money" loan (we'll discuss "hard money" lending in another post).  An  excellent explanation of bridge loans can be found here: Investopedia - Bridge Loans

Regardless of which side you're representing in a transaction, it is incumbent upon you to make your client aware of the SBA loan process and potential timetable.  For sellers, during the listing process, you need to find out what type of financing they are willing to work with since there may be added closing costs, in addition to the previously mentioned delays. For buyers, giving them as much information as possible will help them to prepare and potentially shorten the overall timetable.  If asked, you should be prepared to provide them with a short list of approved SBA loan providers.  Our group has seen excellent lending experiences with Jim Lindsey, Sr. V.P. at Allegiance Bank's North Loop West office.

For a detailed explanation of the SBA loan process (and there is a plethora of SBA loans to choose from), you can refer your clients here: U.S. Small Business Administration - Steps in the Life of an SBA Loan


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