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Small Business Lending Software

Small business lending is done the most by the U.S. Federal Government, making it the nation's largest provider of credit to small businesses. Since 1953, the Federal Government's Small Business Administration has helped small businesses succeed, from start-up through the many stages of growth, with small business lending. Many big businesses whose names are now household words -- FedEx, Intel, Nike, Apple, Ben & Jerry's, Compaq and AOL, just to name a few -- received money from the federal government along the way utilizing small business lending processes. Below is a recent small business lending software Q&A by the NAGGL organization.

Small Business Lending Software Topic:

Combining SBA 7(a) and 504 Loans

Question: In our small business lending software, we are working on a business acquisition transaction that includes the purchase of equipment and real estate, which we've broken down as follows:

• 7(a) loan for the small business lending acquisition = $2,000,0000 (75% guarantee = $1,500,000)
• 504 loan for the small business lending equipment = $466,500 first/conventional loan and $373,200 debenture
• Conventional small business lending real estate loan = $1,350,000

We have two small business lending software questions:

1) The consensus in our small business lending office is that we must first fund the loan through the 504 small business lending software program and then fund the 7(a) loan. But, in that case, there would not be a sufficient guarantee remaining for the $2,000,000 small business lending acquisition.

2) Is this an eligible small business lending software transaction? (The SBA would not get any of the real estate as collateral.)

Small business lending software policy notice 5000-940 addresses this question. It states, "As a reminder, the dollar amount of a 504 small business lending request from a small business is combined with all outstanding 504 and 7(a) guarantee loan balances of that same small business (including all affiliates) when determining the maximum small business lending software guaranteed amount that one borrower is permitted to have approved and outstanding (SOP 50-10, Subpart A, Chapter 4, para. 2, page 96-1)." The key phrase is "when determining the maximum small business lending software guaranteed amount."

In this case, the 7(a) small business lending software request is for a total loan of $2,000,000, which is the maximum 7(a) loan amount allowed. The small business lending software amount is $1,500,000 (75% of total loan), which is also the maximum guarantee amount allowed. As a result, right from the get-go, the 7(a) small business lending software is at its maximum. So it should be approved/funded first.

The 504 debenture amount is $373,200. The maximum guaranteed amount for a 504 small business lending software borrower is $2,000,000 (assuming it is not a loan to a small manufacturer and that it meets a public policy goal -- otherwise the max is $1,500,000). If the 504 small business lending software loan does not meet one of the public policy goals, only one of the small business lending software requests made of the SBA can be financed.

If it does meet one of the public policy goals, then approve/fund the 7(a) small business lending software loan first for a guaranteed amount of $1,500,000 and then the 504 for $373,200. As a result, the maximum after the 504 is funded will not exceed the $2,000,000 maximum guaranteed amount to one small business lending software borrower. Note: This response is based on the assumption that there are not any other small business lending software guaranteed loans outstanding as they would have to be included in the equation.

Here's another example of a situation that includes a 504 small business lending software loan to a small manufacturer.

The maximum debenture to a small business lending software manufacturer is $4,000,000. If the lender has two requests that come in at the same time for a 7(a) small business lending software and 504, and the 7(a) small business lending software is a working capital loan with the guaranteed portion being $500,000, and the 504 manufacturer loan application is for $3,500,000, then it would be imperative that the 7(a) small business lending software loan be funded first.

1) If the 504 loan is funded first at $3,500,000, the 7(a) loan would not be eligible since the maximum amount for a 7(a) small business lending software loan would be exceeded when the guaranteed amounts from the 7(a) and 504 small business lending software loans are combined.

2) If a flood insurance determination is required and the collateral is just business assets (i.e., no real estate) and the "property" is located in a flood hazard zone, do we just document the file as no insurance necessary or should we make a change to our internal small business lending software loan policy? The bottom line is if we are just going to 'waive' the requirement, why do the determination?

The small business lending software still requires that the lender use the FEMA Form 81-93 to determine if any of the collateral is located in a building that is in a special flood hazard area, even if the building is not collateral for the small business lending software loan. This allows the lender to determine whether to require flood insurance based on the value and type of collateral and the risk to the collateral, even if flood insurance would not be required under the NFIP or small business lending software's new interpretation. Even with a small business lending software loan under $100,000, it is conceivable that there could be a circumstance where the lender finds that the risk warrants an exception to their policy of no coverage.

The lender should document the file stating that flood insurance is not required under small business lending software policy or under the lender's policy based on the size of the loan and the risk. This demonstrates that small business lending software loans are treated the same as their other similar non-SBA loans, and show that the issue was considered.

Source: www.naggl.org

WebEquity calculates a complete financial analysis on any loan type, from the simplest loan requests to the most complex agricultural and related small business credits utilizing the Farm Financial Standards Ratios and RMA Industry Comparisons. Credit bureau reports can be pulled from within the WebEquity system and lenders can include that information in their scoring and rating parameters. WebEquity also provides the Fair, Isaac LiquidCredit® analytic and decisioning service for small business lending, including the industry-leading Small Business Scoring Models^SM (SBSS^SM) functionality so lenders can quickly and confidently process loans up to $250,000 with little or no financial data.

Source: Small Business Lending Software