Small-Business Smarts: The SBA’s other loan program

Should community banks consider offering the SBA Express program for smaller loans?

By William Atkinson

The most well-known SBA loan program, of course, is the traditional 7(a) program. But for community banks that want to offer an alternative to their small-business customers, it might be worthwhile to consider the SBA Express program. Compared with 7(a) loans, Express loans have lower maximum loan amounts for borrowers and lower SBA guarantees for lenders, but greater lender authority and higher maximum interest rates.

SBA Express loans are common today, according to G. Arne Monson, president of Holtmeyer & Monson, an SBA lender service provider serving community banks in Memphis, Tenn. Over the past three years, the Express program has represented slightly less than 10 percent of total dollars but 50 percent of the total SBA approvals, measured in total number of transactions. “These are small-dollar transactions, and most lenders make them in order to take advantage of the expedited processing,” Monson says.

In addition, the SBA requires less paperwork from the lender for Express loans, which can reduce the timeline for lender loan approval. The reason for this, and for the shorter review period, is that the SBA gives lenders more independence in the loan approval process, placing more trust in the lender’s review and underwriting abilities, since the loan amount maximum and the SBA guarantee are lower than they are for 7(a) loans.

There are two other programs that are part of the overall Express program that could provide niche opportunities for community banks.

The Veterans Advantage program is exclusively for small businesses that are owned and controlled by veterans (including active duty military, reservists, National Guard and spouses of military personnel who died during service or of a service-connected disability).

And the Export Express program is for small businesses that need funds to enter a new export market or expand in an existing export market.

It is important to consider all options when offering SBA loans to customers, and then decide what is most strategically important to your bank and most useful to your customers. “While it is quicker and cheaper to use the Express program,” says Monson, “we advise our clients that, if they are looking to mitigate risk, the 7(a) program, with its 75 to 85 percent guarantee, is far more advantageous.”

William Atkinson, a longtime Independent Banker contributor, is an Illinois-based journalist specializing in banking and small-business issues.