When seeking an SBA loan, navigating the approval process can be time-consuming. However, there is a way to expedite the process and avoid lengthy waits for SBA approval. 

The Small Business Administration established the Preferred Lenders Program (PLP) to streamline loan applications and provide lenders with the authority to make final credit decisions. 

In this article, we will explore the advantages of working with an SBA Preferred Lender and the key differences between PLP and CLP lenders.

What is an SBA Preferred Lender?

An SBA Preferred Lender is a financial institution that has been granted the authority to make credit decisions on SBA loans without having to wait for SBA approval. 

To attain this status, lenders must demonstrate a history of efficiently processing and servicing SBA loans, while also meeting the SBA’s criteria for processing volume, performance, knowledge of SBA policies, and risk mitigation. 

However, it is important to note that PLP status is valid for a period of two years, after which lenders must undergo a recertification process.

Lender Eligibility Requirements for SBA Loan Programs

When it comes to participating in SBA loan programs, lenders must meet specific eligibility requirements based on the lending program they wish to engage with. 

The SBA offers three primary lending programs: 7(a), CDC/504, and Microloan. Each program has its own unique lending practices and criteria for lenders.

Let’s delve into the eligibility requirements for each program to help you determine which one is the best fit for your institution.

7(a) Loan Program

The 7(a) loan program enables banks, savings and loans, credit unions, and other specialized lenders to offer small business loans that adhere to 7(a) guidelines. In the event of borrower default, the lender may request that the SBA purchase the guaranteed portion of the loan. 

To participate in the 7(a) loan program, lenders must meet the following requirements:

  • Demonstrate the ability to evaluate, process, close, disburse, service, and liquidate small business loans effectively.
  • Be open to the public for issuing loans and not primarily engaged in financing the operations of an affiliate as a financing subsidiary.
  • Maintain a good character and reputation, aligning with ethical requirements outlined in 13 CFR Part 120.140.
  • Be subject to supervision and examination by a state or federal regulatory authority, which is deemed satisfactory by the SBA.

CDC/504 Loan Program

The CDC/504 loan program involves Certified Development Companies (CDCs), nonprofit corporations established to contribute to the economic development of their communities. CDCs are certified and regulated by the SBA, working in collaboration with private-sector lenders to provide long-term, fixed-rate financing for significant fixed assets such as land, buildings, machinery, and equipment. 

For lenders to participate in the CDC/504 loan program, they must meet certain requirements, including:

  • Operate as a nonprofit corporation in good standing.
  • Have a board of directors consisting of at least nine voting directors (additional board requirements are listed in 13 CFR 120.823).
  • Employ full-time professional management and staff.
  • Maintain a minimum level of lending activity.

Microloan Program

The Microloan program is designed to provide small businesses with short-term loans of up to $50,000 for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery, and equipment. The SBA allocates funds to designated intermediary lenders, which are non-profit organizations with experience in lending and technical assistance. These intermediaries then issue loans to eligible borrowers. 

To participate in the Microloan program as a lender, the following requirements must be met:

  • Operate as a private nonprofit, quasi-public, or tribally-owned entity.
  • Have a minimum of one year of experience directly issuing and servicing microloans.
  • Possess at least one year of experience providing in-house marketing, management, and technical assistance to micro-level borrowers.

Understanding these eligibility requirements will help lenders determine which SBA loan program aligns best with their capabilities and objectives. By meeting the specific criteria for each program, lenders can confidently engage in SBA lending and support the growth of small businesses.

Advantages of Working with an SBA Preferred Lender

Speed: Time is of the essence for small businesses, and working with a PLP lender can significantly expedite the approval and funding process. Since PLP lenders handle everything in-house, borrowers can expect faster approvals, saving valuable weeks of waiting.

Reliability: Preferred Lenders have proven track records of successfully financing SBA loans. Maintaining their PLP status requires diligent efforts, making them trustworthy partners for small businesses in need of financing.

Documentation: Unlike non-PLP lenders, Preferred Lenders conduct the underwriting process internally, minimizing the extensive paperwork typically required by the SBA. This streamlined documentation process makes the loan application experience less burdensome for borrowers.

The Difference Between PLP and CLP Lenders

While PLP lenders have the final credit decision-making authority, Certified Lender Program (CLP) lenders operate under a slightly different arrangement. CLP lenders are approved to service SBA-backed loans using their own application forms and documentation. However, the SBA retains the ultimate approval authority, meaning the loan application still undergoes two underwriting processes. Although not as fast as PLP lenders, CLP lenders offer a quicker approval process compared to non-preferred or non-certified lenders.

Who Are the Top 10 SBA Lenders?

Here is the latest data on the top SBA 7a Loan Programs.

Lender
  1. Live Oak Banking Company
  1. The Huntington National Bank
  1. Newtek Small Business Finance, Inc.
  1. Celtic Bank Corporation
  1. Readycap Lending, LLC
  1. BayFirst National Bank
  1. TD Bank, National Association
  1. Wells Fargo Bank, National Association
  1. Byline Bank
  2. First Internet Bank of Indiana

Roundup

Working with an SBA Preferred Lender offers significant advantages for small businesses seeking timely financing. From expedited processing and reliable service to simplified documentation requirements, borrowers can experience a smoother and more efficient loan application process. 

Whether opting for a PLP lender for faster approvals or a CLP lender for improved efficiency, borrowers can benefit from the expertise and support of these designated SBA lenders. 

Let FlashSpread help you process more SBA loan applications faster with our automated financial spreading.