The Business Buyer's Advantage Website

The Business Buyer’s Advantage Website is fortunate to have the expertise of Harlan Friedman, President and Broker of Lightning Commercial Funding regarding all types of commercial and small business lending.

He has compiled for business buyers the essential information regarding financing of business acquisitions and commercial investments. The following questions, comments, concerns, and the corresponding answers should help better prepare the business buyer and the business seller for SBA lending and commercial lending for all investment opportunities.

Commercial lenders (Banks) use different acronyms regarding the type of SBA lender they are; would you explain the differences?

The Small Business Administration or SBA for short has two distinct designations for lenders. There is a drastic difference between the categories as to how and when your loan will be approved. Certified Lender Providers (CLP) and Preferred Lender Providers (PLP) are the two broad categories with various sub categories.

Commercial banks and savings and loan associations are eligible participants. A commercial lender can be either a CLP or a PLP. Other types of commercial lenders may apply to become eligible participants through the SBA field office serving the area where the lender operates.

Lets start our discussion with CLP.

Under the Certified Lenders Program (CLP), designated lenders process, close, service and may liquidate, SBA guaranteed loans. SBA gives priority to applications and will provide expedited loan processing or servicing.

Upon nomination and approval, SBA designates lenders for CLP status. CLP lenders must perform a thorough credit analysis on the loan application packages they submit to SBA so that SBA can rely on that analysis to allow it to perform a credit review instead of a complete credit analysis, thus shortening the SBA loan processing time. For CLP loans, SBA still makes both credit and eligibility decisions about whether to guarantee the loan. The Agency will review the portfolios and practices of CLP lenders from time to time to monitor their ability to process, close, service, and liquidate SBA loans.

In other words a CLP lender can do everything preliminarily to approve a loan for a borrower except give the final approval. So the bank prepares the entire loan package and then sends it off to the local SBA office for approval.

A PLP on the other hand can close a loan in the name of the SBA without any further approvals as noted in the code section quoted below

Under the Preferred Lenders Program (PLP), designated Lenders process, close, service, and liquidate SBA guaranteed loans with reduced requirements for documentation to and prior approval by SBA.

Providing that all information in the loan package meets the basic standards of the SBA a PLP lender only goes to the SBA for a number prior to closing the loan. NO other approvals are forthcoming.

However if for example a question on the personal statement should be answered yes and the applicant answers no a PLP lender may be required to go to the local SBA for an override approval.

Therefore in conclusion if you are ever going to pursue an SBA Loan, deal only with a Preferred Lender Provider or insist that your financial broker only works closely with PLP's.

Just by asking about PLP vs. CLP you will know if your financial advisor is astute, use this question as a way of finding the right broker for you.

We're interested in acquiring a construction loan and we own our property free & clear, it is valued about $1.5 million. Can we build a small development project for about three million for no money out of our pocket, other than pledging the equity in our land?

Generally the answer is yes. But let me explain. When building a project we look to loan at loan to cost as a guideline rather than loan to value. Most lenders will lend between 80 to 90% loan to cost, cost being the project cost to develop.

As you mentioned you have a property that is worth 1.5 million so in essence you now have 1.5 million in equity towards your ultimate development. Also equity can be any other costs directly associated with planning your development, and any "soft" costs that you have acquired as well.

You may now have the ability to build a project of up to $5,000,0000 or even higher, depending on other factors, such as appraisal of the property. But if you are planning a small development and have the right team in place you should not have to come up with any additional equity

I've just been approved for a construction loan and my lender told me that I have to use Fund Control to distribute all of the construction loan proceeds. Can you please tell me what Fund Control is and why it is useful for me?

Fund Control is a system of checks and balances a lender uses to manage the distribution of your loan proceeds. When you start a construction project the lender wants to make sure that the funds are being used for their intended purposes, and that the work you are paying for was indeed accomplished.

The benefit to you is that one of the many controls the lender puts in place is that of requiring all mechanic lien releases to be filed and executed by the general contractor as well as the subcontractors. A mechanic lien releases removes any liability that you may have as the owner of the property regarding the fact that the general contractor has paid his subcontractors for the requested loan draw.