Banks, savings and loan institutions, credit unions and other lenders work with the SBA to provide small businesses with loans structured under 7(a) guideline. Lenders are active participants in the loan application process since they are the first stop for potential applicants and because they ultimately provide the loan funds.
The most active and expert SBA lenders qualify for the SBA’s Certified and Preferred Lenders Program. Participants are delegated partial or full authority to approve loans, resulting in faster service to the applicant.
It’s important to understand that each bank or lender has to be approved or authorized by the SBA in order to work with them. Approval is based on the length of time they have worked with the SBA as well as their performance with them based on quality of submissions and rate of defaulted loans, etc. Each lender’s approval level dictates steps involved with processing SBA loans. For example, the lower the level of approval the lender has, the more steps there are in the loan process for you as well as for the bank. Therefore, you want to work with lenders that have the highest level of approval.
The Preferred Lender Program
The Preferred Lender Program, or PLP, is the highest level of approval and status that a lender can hold in the SBA loan program. This status dictates that your loan will not have to be approved directly by the SBA, only by the funding bank or lender.
Preferred lenders are chosen from among the SBA’s best lenders and enjoy full delegation of lending authority. This authority must be renewed at least every two years, and the SBA will periodically examine the lender’s portfolio. Preferred loans account for 18 percent of SBA loans.
PLP was developed to reward experienced lenders by:
1. Streamlining and adding flexibility to the loan application and servicing requirements
2. Expediting loan approval and other SBA decisions
3. Allowing lenders to originate and service guaranteed loans the way they do other loans in their portfolio.
Lenders with “preferred” status have broad authority in making and servicing SBA guaranteed loans and can utilize their own underwriting and servicing policies. Lenders who apply for PLP outline the manner in which they intend to process and service SBA loan guarantees. This “credit management system” becomes the basis for approval decisions on applications they submit.
How Does a Lending Institution Become a Preferred Lender?
To attain PLP status, lenders must:
- Have the required ability to process, close, service and liquidate loans.
- Have the ability to develop and analyze complete loan packages.
- Have satisfactory SBA performance, as determined by SBA in its discretion. The Lender’s Risk Rating, among other factors, will be considered in determining satisfactory SBA performance. Other factors may include, but are not limited to, on-site review/examination assessments, historical performance measures like default rate, purchase rate and loss rate, loan volume to the extent that it impacts performance measures, and other performance related measurements and information such as contribution toward SBA mission.
Before it can operate as a PLP Lender, the approved Lender must execute a Supplemental Guarantee Agreement, which will specify a term not to exceed two years.
Certified Lender Program
The Certified Lender Program, or CLP, permits lenders with a proven track record in making and servicing guaranteed loans to operate under streamlined procedures. CLP lenders are able to use their own forms if they are approved by SBA, and the information these lenders have to submit to the SBA is minimal.
Certified lenders are heavily involved in regular SBA loan guarantee processing, and they meet certain other criteria. They receive a partial delegation of authority and get a 36-hour turnaround on loan applications; they may also use regular processing. Certified lenders account for 10 percent of all SBA business loan guaranties.
However, with CLP lenders, your loan will have to be approved by the lender, and then approved by the SBA. So there are two underwriting and approval processes if you work with a lender that holds the CLP status. This means that the loan process will take an additional 2 to 3 weeks, at a minimum.
How Does a Lending Institution Become a Certified Lender?
To attain CLP status, lenders must:
- Have the ability to process, close, service and liquidate loans.
- Have a satisfactory performance history with SBA, including the submission of complete and accurate loan guarantee application packages.
- Have an acceptable SBA purchase rate.
- Have shown the ability to work well with the local SBA office.
PLP & CLP Status
Both the PLP and CLP lenders are granted this status for a 5-year period, after which they can request a renewal. Lenders must continue to meet the eligibility criteria and show that they have acted according to conditions outlined in their Lender’s Agreement.