Financial Affairs

SBA bottlenecks delaying loan approvals

Bankers and borrowers must be patient with the Small Business Administration as the agency works on a growing backlog of 504 loan applications.

Turnaround times that took less than a week before the pandemic can now stretch for weeks, lenders have said. They said the SBA has its work cut out for managing the paycheck protection program – the agency has approved 1.9 million P3 loans totaling $ 140 billion since Jan.11 – along with an increase applications for 504 loans, which finance fixed assets such as real estate and machinery.

“The SBA has so much work to do,” said Chris Hurn, managing director of Fountainhead Commercial Capital in Lake Mary, Florida.

“There is a demand for 504, a demand for 7 (a),” Hurn added. “The SBA is also juggling forgiveness and a new round of P3 loans. Something must give. … I don’t see things getting any better until PPP is in the rearview mirror. “

Banks finance half of every 504 loan, with the remainder being covered by borrowers and certified development companies. Because of its complex formula, the SBA reviews and approves every loan – 3,368 of which since the start of the new fiscal year on October 1.

The need to look at loans individually contributes to some of the delays, lenders said.

Approvals that used to take three business days can now take more than two weeks, said Barbara Morrison, founder and CEO of TMC Financing, a certified development company in Oakland, Calif. That lends in Arizona, California and Nevada. .

Other factors can create longer waits.

“If you send a file and there are questions, the timing is out of order,” Morrison said.

The SBA did not immediately respond to a request for comment.

Activity for the 504 program picked up after a slow start to fiscal 2021. Overall volume more than doubled between Dec. 4 and Feb. 19, to about $ 2.7 billion, according to the SBA. This volume is 12% ahead of the same period of fiscal 2020.

“Volume has never been higher,” Morrison said, adding that TMC had a record lending volume in its fiscal fourth quarter which ended on September 30.

“Then our first shift got even busier,” she said.

Applications could increase in the coming weeks, as soon as the SBA issues rules allowing borrowers to take out 504 loans to refinance government guaranteed debt of less than 504. The previously prohibited option was authorized by the stimulus law. adopted by Congress on December 27.

The law allows for the creation of a 504 Express option that would allow qualified lenders to guarantee and approve loans up to $ 500,000 internally.

So far, lenders have had to spend more time managing borrower expectations or redirecting them to other loan products.

TMC recently asked a time-pressed borrower to finance a project with a 7 (a) loan on less favorable terms, Morrison said.

“We’ve heard that small businesses are losing out on properties because sellers won’t give them enough time for SBA approval to close the escrow,” Morrison added.

“Obviously the SBA is limited right now,” said Tom Pretty, head of SBA loans at TD Bank, with $ 388 billion in assets. “They did a great job throughout all of this in a lot of ways, but the processing time for 504 loans has gone down.”

The 7 (a) program was smoother than 504 for several reasons, the bankers said.

Banks are allowed to lend directly to borrowers under 7 (a). The SBA has also delegated underwriting and approval authority to hundreds of participating lenders. And the program already has an Express product.

Adding a 504 Express product would resolve some of the existing bottlenecks.

“There are many CDCs where [loans of $500,000 or less] make up the bulk of their volume, ”Morrison said. “I really hope these regulations will come out soon.”