New SBA Loans on Hold During Government Shutdown

Business Buyers and Sellers and their Brokers may face an unusual stall on closing their deals due to the federal government shut down.

GABB President Dean Burnette says, “I’m in the final stages of closing a deal right now. Fortunately, our SBA Lender got an authorization number the night before the shut down so we will receive our funds.”

Experienced brokers understand that it takes time to work through all of the steps it takes to close a business deal. However, if you are a buyer or a seller, brace yourself because there might be a delay in getting the funds if you’re working with an SBA loan.

The Small Business Administration halted its program supporting 7(a) loans for working capital and 504 loans for commercial properties on December 22, the day the government shutdown began, The Washington Post reports. Usually, the SBA manages about 200 loans for working capital and 120 loans for commercial properties per day, amounting to roughly $200 million worth of loans every day for small and midsize businesses, according to a report on Inc. Currently, only funds for disaster-related loans remain active. The Post also reported that Linda McMahon, head of the Small Business Administration, has plans in place to expedite loans as soon as the government opens again, citing and unnamed source.

SBA Loans usually take at least four weeks to process, Burnette said. “Chances are if you are just at the stage of applying for the loan, and you’re working with a Preferred SBA Lender, you may not experience any delay.”

Susan J. Kite, vice president and SBA Business Development Officer of Renasant Bank, said an experienced Preferred Lender (PLP) does not need to go to the SBA until just prior to closing to get a loan number. Most lenders went ahead and got the loan numbers for their approved loans prior to the shutdown, so those loans will not be affected, said Kite, a GABB affiliate member. It is not unusual to take 60 to 90 days for an SBA request to be processed and closed. Depending on where your deal is on that spectrum, you may or may not be delayed, Kite said. 

Claudia Wilson, Senior Vice President of SBA Lending for First Landmark Bank, said it’s “business as usual, unless you need a SBA loan number (SBA approval) to close a loan. We are accepting applications, can process them and prepare them for closing.”

Suggestions from Kite for Business Brokers during the shutdown:

  • Work with an experienced PLP lender.
  • Set realistic expectations with the Buyer and Seller as to when their deal would normally close and the implications if the shutdown drags on past that date.
  • Let Sellers and Buyers know that they will need to keep their financial information updated, especially in regards to Seller and Buyer’s Affiliate interim business financials and Buyer personal financials.
  • If a short-term loan is mandatory, work with your lender on the best alternative – since this changes the SBA loan to a debt refinance with different rules.

GABB member Leigh Milton, senior vice president of CenterState Bank, said brokers should “treat this shutdown like you still have a hard closing date. Moving towards the goal of getting all the docs ready to close always seems to preserve momentum. Be ready to go when this turns around.”

He suggests that brokers make sure the dates on the financials aren’t stale, if you haven’t gotten updated interims in a while .
  • prepare the buyer and seller to get updates sent dated within the last 60-90 days if possible to give yourself some cushion.
  • While you can close with an SBA loan number issued prior to the shutdown, if there are any changes or corrections to the authorization, you will probably have to wait until the shutdown ends to get these changes approved and close. PLP changes made under the guidance of the “loan matrix” are allowed.
  • ‎Don’t forget to finalize items like life insurance during the delay as these items can hold up closings and but having them in place takes them off the checklist. Work your checklist and it should pay off when things finally get back to “normal”!

Wilson said a “bridge” or “interim” loan may be made available by PLP lenders only but it is up to the lender’s discretion. “I think this would be permitted under limited circumstances since the loan would be made at the lender’s risk of not receiving the SBA guaranty.  The lender would have 90 days from approval of the interim loan to obtain a SBA loan number,” Wilson said.

GABB brokers are working closely with their affiliate lenders to get as much accomplished as possible to minimize the delay or inconvenience to buyers and sellers affected by the shutdown. Plan for that process of processing SBA loans “to take longer since SBA will need to make up for lost time once the shutdown is over,” Wilson said.

“Although the Government shutdown is certainly not ideal, for those of us who have been in SBA lending for a while, we have weathered this storm before,” said David K. Brindley, Vice President, Business Development Officer of SBA Lending at United Community Bank.  “So my advice to lenders, Brokers, Buyers and Sellers is to stay calm, don’t panic, hang in there and keep moving forward with business as usual.”

If you are in the process of looking for a lender to buy a business the Georgia Association of Business Brokers encourages you to contact one of our affiliate lenders. We believe they will have the resources and experience to help you through the process.
“No one knows how long the shutdown will last,” Burnette said. “There may be some other ways to accomplish your goals through short term bridge loans or other means.”Experienced lenders will be the best prepared to help you through it. Of course, a good GABB member Broker may also have what it takes to keep everyone in the deal until completion.”
Brindley thinks “Things will work out if calm heads prevail.  After all, the Government will eventually reopen. If the parties to a transaction are fully committed to a deal, then the deal will happen.  For deals that are in process right now there may be some delay, but if the right expectations are set then the parties can make adjustments and work through it to a successful closing.”