I am a big fan of the U.S. Small Business Administration and the agency’s assortment of lending programs. SBA’s loan guarantee programs enable small business lenders to make loans that they would otherwise deem a bit too risky to fund conventionally. In other situations they use the agency’s loan-guarantee programs to grant longer loan terms and sometimes decrease the equity requirement that borrowers would need for conventional financing.
“SBA loans can provide more flexible terms, longer amortization, or fixed rate options that are unavailable with some conventional loans,” according to an e-mail response I received from Pittsburgh, Penn.-based PNC. Last year, the bank acquired the United States affiliate of RBC, a huge financial institution domiciled in Canada.
The bank recently funded a SBA-guaranteed line of credit to Beau Williams, an entrepreneur who launched VSOP Olive Oil & Vinegar Taproom in Roswell, an Atlanta, Ga. suburb.
“A line of credit is revolving and is typically used to meet short-term needs such as covering inventory and account receivables,” says PNC’s media relations department.
SBA calls its line of credit program “CAPLines.” But according to the agency, “CAPLines was (historically) an underutilized SBA working capital program.” The problem is that lines of credit (LOCs) require more extensive underwriting and monitoring. Moreover, the staff that makes term loans to small businesses does not always have the necessary skills to analyze LOCs.
Adding to the problem, SBA’s CAPLines imposed substantially more requirements than conventional, non-government guaranteed LOCs. As a result, very few lenders participated in the CAPLines Program.
“This year, the SBA engaged over 150 community lenders in all 50 states to uncover ways the program could work more effectively,” according to SBA. As a result, they modified the program to closely resemble what lenders require to make conventional LOCs.
But a SBA officer told me he was initially having difficulty getting small business lenders on board. He eventually realized that, “we were talking to the wrong people.” Instead of talking to people in the bank that make LOCs, “we were speaking with the ones that make term loans.”
That is the same mistake that borrowers make when they look for financing the old-fashioned way. They march into a bank with the wrong exhibits, a poorly conceived elevator speech and meet with a person who is not skilled in the multitude of financing programs that his or her financial institution makes.
But technology is changing the way banks do business and BoeFly.com is on the cutting edge of applying its web-based platform to connect loan applicants with the right loan officers, the right lending programs and presenting them with the information they need to spark their immediate interest.
“First and foremost, they must be prepared,” says Mike Rozman about loan applicants approaching lenders. He is BoeFly’s co-president and recently spoke a webinar hosted by the International Franchise Association. “When they’re in front of lenders they want to have information available such that the banker can underwrite the borrower.”
BoeFly’s website walks loan applicants through the information and documentation they must have to get a quick approval. What’s more, qualified applicants get multiple offers from among the 2,200 lenders that are ready to fund their applications.
Loan applicants “need to connect with the right lenders,” Rozman says. “And hopefully with a wide array of lenders to create competition amongst those lenders — create an auction.” The auction process gives loan applicants the choices that are the most suitable for their individual situation.
Meanwhile, back in Atlanta, Beau Williams told me that he went from bank to bank “and they turned me down because they don’t do startups.” But he was tenacious and eventually stumbled upon Patty Conway, a loan officer with RBC. She agreed to make his small business a LOC.
Conway transitioned to PNC after it merged with RBC and she honored her commitment. But it took an inordinate amount of time to close the loan and get the funds into Williams’ bank account.
By comparison, BoeFly’s platform uploads all the necessary closing documents needed by the bank and its lawyers. That expedites the closing and gets cash into the borrower’s business more quickly. As a result, loan officers know that they can make fast decisions on whether or not to make the loan. Moreover, they have happy borrowers because the loans are closed without delay.
“From my experience, borrowers that I source through BoeFly are very prepared to engage with me as a lender,” says Kevin Ellis, vice president of Atlantic Coast Bank in Jacksonville, Fla. He was a speaker at the International Franchise Association’s webinar and spoke about his experience using BoeFly’s technology. “It really adds to the legitimacy of the platform and that it is this new technology that I think is going to be the norm as we go on into the future,” he says.
Jerry Chautin is a former entrepreneur, commercial mortgage banker and business lender. He writes and blogs about business and real estate for several publications and is SBA’s 2006 national “Journalist of the Year.” Jerry is a volunteer business mentor with SCORE, “Mentors to America’s Small Business,” offering free business advice. Post your comments and ask questions on this Blog or send Jerry an e-mail.
Copyright © 2012 Jerry Chautin — All rights reserved.