Are you a small business owner looking to grow or acquire a business but unsure how SBA loans work? In this episode of Radio Free Enterprise, Frank Felker sits down with Mary Soldano, SBA Business Development Officer at Truliant Federal Credit Union, to demystify the SBA loan process. Mary explains the key differences between SBA loans and traditional loans, the role of government guarantees, and the flexibility SBA loans offer—including access to capital with minimal collateral requirements.
Mary also dives into the “5 Cs of Credit” lenders use to evaluate applications, emphasizing the importance of cash flow, management experience, and transparency. You’ll learn how to choose the right SBA lender, navigate the application process, and understand recent changes to SBA lending rules, such as new equity injection options for business acquisitions.
Whether you’re considering an SBA 7(a) loan for real estate, working capital, or business acquisition, this interview provides invaluable insights to guide you through the lending process. Don’t miss this comprehensive guide to securing the funding your business needs!
Mary’s Contact Information
Mary Soldano
SBA Business Development Officer
Truliant SBA Lending
Phone: 856-562-8323
https://www.linkedin.com/in/marysoldano1/
What follows is an AI-generated transcript of our entire conversation. Please excused any typos!
[00:00:00] Mary Soldano: Banks are still taking a risk. So there are still certain underwriting guidelines and criteria that they have to underwrite by in order to extend that financing to you. The program is really there to create better access to capital for the small businesses in America. And so not everyone is qualified for a traditional commercial loan where you need collateral that is worth more than the financing you are getting.
[00:00:21] Mary Soldano: In the SBA world, you can get a 3 million loan and have essentially no collateral. Collateral on that loan because of the SBA program, which that can really either help you buy a business, grow your business, um, it can do a lot for the small business economy.
[00:00:41] Dude Walker: And now it’s time once again for the show that gives glorious voice to 25 million business owners across the Fruited Plane Radio Free Enterprise with Frank Felker.
[00:00:57] Frank Felker: Thank you, Dude Walker. Yes indeed. I am Frank Felker. Welcome back to Radio Free Enterprise. My guest today is Mary Soldano. Mary is an SBA business development officer with Truliant Federal Credit Union. Mary’s calling in today from the greater Philadelphia area. Mary, welcome to Radio Free Enterprise.
[00:01:20] Mary Soldano: Hi, thank you so much for having me.
[00:01:23] Frank Felker: I’m so happy you’re here, Mary. I want to, uh, ask you a bunch of questions about a topic which you are quite expert at, but which causes a lot of confusion for a lot of small business owners. And that has to do with SBA loans, SBA as in Small Business Administration. So people, here’s, you know, I’ve heard people say they don’t understand small business or SBA loans.
[00:01:47] Frank Felker: They don’t, uh, they have misconceptions, especially about what exactly gets guaranteed and what they’re going to be on the hook for. And how to apply and how long the process takes, just all kinds of things. So I appreciate you taking the time to come and get us all straightened out on that. Yeah. So first off, Could you give us your sort of, uh, 40, 000 foot view of what exactly an SBA loan is and how does it differ from, I guess we might call it a traditional business loan?
[00:02:19] Mary Soldano: So an SBA 7A loan is very different than a conventional loan, um, that traditional banks offer you. So SBA 7A, it is a government program. And they use bank intermediaries to lend those funds. So think of FHA went for the first time home buyers program or federal student loans. It’s under that same umbrella where it’s government guaranteed lending and it is, uh, guaranteed by 75%.
[00:02:45] Mary Soldano: So what happens is a bank or an approved financing institution lends you their money. for the SBA 7 A loan and the government backs that loan by 75%. So sometimes folks get confused because they think the actual government is lending them those dollars. It’s not, it’s banks like, um, or credit unions like Truliant or some of the big guys like Wells Fargo, uh, TD bank, um, all of those types of things.
[00:03:09] Mary Soldano: Thanks. They are lending you their money and then it is backed by the government if that loan were to go into default. So at the end of the day, you as the small business owner and guarantor on the loan are responsible for paying that loan back. You are first responsible to that financing intermediary, whether it’s us or somebody else.
[00:03:28] Mary Soldano: And then if it were to go into default, then you are working out some type of payment plan with the government.
[00:03:33] Frank Felker: Okay. So, uh, you’ve made it clear, but I just want to reiterate. Okay. I’m still on the hook for this loan. Uncle Sam is not going to come bail me out. In fact, it’s more, he’s sort of like going to bail you out, make it easier for you to take the risk on me, because even if I end up blowing it, the government will come and guarantee the loan.
[00:03:56] Frank Felker: Now, the next thing is you, I think you did mention this. But the government won’t guarantee 100 percent of the loan amount. Is that correct?
[00:04:05] Mary Soldano: Yeah. So banks are still taking a risk. So there are still certain underwriting guidelines and criteria that they have to underwrite by in order to extend that financing to you.
[00:04:13] Mary Soldano: The program is really there to create better access to capital. for the small businesses in America, and so not everyone is qualified for a traditional commercial loan where you need collateral that is worth more than the financing you are getting. In the SBA world, you can get a three million dollar loan and have essentially no collateral on that loan because of the SBA program, which that can really either help you buy a business, grow your business.
[00:04:38] Mary Soldano: Um, it can do a lot for the small business economy.
[00:04:41] Frank Felker: Interesting. I wasn’t aware of that. Uh, that there potentially could be no collateral requirement at all. That’s interesting. Okay. So if I’m not coming to you with collateral, uh, what, what are you looking for? I assume even with an SBA guarantee from the government, TrueLion’s not going to loan to anybody who just happens to put in an application.
[00:05:08] Frank Felker: What is it that you guys are looking for from me as a business owner?
[00:05:12] Mary Soldano: Yeah, correct. So there’s the SBA SOP, which every single SBA lender has to abide by. So those are bare minimum rules. And then on top of that, each lending institution has their own credit box rules on top of that, that they want to make sure their board is okay with and their credit teams are okay with.
[00:05:29] Mary Soldano: And so the biggest things, um, there’s, you know, the whole five Cs of credit, which every lending partner looks at, um, for us, our biggest items we’re looking at is cashflow. So we are cashflow lenders. So can the loan that you’re asking for, can the business you’re running or the business you are going to buy cashflow for the debt you are requesting cashflow.
[00:05:48] Mary Soldano: And then also management experience is huge. So the people, You know, you, if you are 20 percent or more owner of that business, you have to personally guarantee on that loan. So we’re looking at the business’s operations. What is their business model? How do they pay their expenses? And then the management expertise.
[00:06:06] Mary Soldano: Who is this person who at the end of the day is on the hook to pay us back? What have they done in their past that relates to operating a small business? How long have they opened this business for? Um, there’s a lot of different things that go into all of that.
[00:06:20] Frank Felker: It’s really interesting that it’s not just the numbers.
[00:06:23] Frank Felker: It’s also the people that you guys are, in fact, you’re lending the money to a person and you’re putting your faith and trust into that person. And, um, so you mentioned a couple of things. Uh, I guess, uh, management experience, uh, the specifics of the business itself, how long it had been in business, um, anything else in particular that you would either look kindly upon in a business or frown upon that you would find in a business application.
[00:06:55] Mary Soldano: Yeah. And so this is a great question, Frank, because there are every SBA lending, um, institution is different, right? So there may be a loan that I would say yes to that. Another loan, another lender would say no to, or the opposite as well. So the industry is a very special place because I get, Probably about half of my referrals are from other SBA lenders in the country.
[00:07:16] Mary Soldano: Um, and so we are able to learn each other’s credit boxes so that at the end of the day, we’re still helping that small business and that entrepreneur. Um, so for example, we at your client, we’re okay with some of those larger, we call them air ball deals. Um, let’s say you are buying a business and it costs 1.
[00:07:32] Mary Soldano: 5 million dollars, but the cash flow is great. Um, you have direct industry experience. Um, let’s say it is a, uh, it’s a restaurant. We’re not afraid of restaurants here. There are other letters who are. Um, and let’s say you’ve been in the restaurant industry your entire life. You know how to manage the inventory.
[00:07:50] Mary Soldano: You know how all of that works. Um, that is a deal that we would do. On the contrary, right now, we are not big in the construction industry. So there’s industry specifics as well that certain lenders will or will not do. Now that could change over the next couple of months. Um, and another lender that sometimes I will send those deals to another friend who is at another lending institution who would be more apt to do that type of transaction.
[00:08:15] Mary Soldano: Um, and so it’s really important that the folks who are in my position as a business development officer know what their credit team is going to want to do. Um, to do at the end of the day and know where to pass and then refer to other colleagues in the industry, you
[00:08:29] Frank Felker: know, I want to come back to the issue of cash flow.
[00:08:32] Frank Felker: If we could, um, you know, that’s a lot of different ways to look at the word cash flow. Um, I often say that, uh, uh, What is it? Profit is a theory, but cash flow is reality. And, uh, you know, do you have money coming in just because it’s on paper that you’re making a profit doesn’t mean you’re going to be able to make payroll on Friday.
[00:08:55] Frank Felker: Yeah. So when you guys are looking at cash flow, um, I assume also what you’re saying or what you’re looking at is, can we carve some of that flow off, move some of that river of money? In a different direction to make these payments and still allow the company to operate. What, what percentage of cash flow.
[00:09:17] Frank Felker: Would be a limit, uh, for the, uh, the payment, the monthly payment.
[00:09:21] Mary Soldano: Correct. So, and that’s, so SBA has a minimum cash flow ratio of 1. 15, which means you can pay all of your expenses at least once, and then you have 0. 15 left over. And that is including your debt service. That is the SBA’s minimum. Now depending on the loan size, we like to see a little bit higher than that.
[00:09:40] Mary Soldano: So if my loan size is above a million dollars, I would like to see closer to maybe 1. 2, 1. 25 on that cashflow ratio. Um, there’s other lenders who won’t do it unless it hits 1. 5. And then it’s also important to know, you’re not just looking at today, you know, 2024, you’re hitting that number of 1. 25, for example, but we need the last two periods to cashflow of that, which would mean one file tax return.
[00:10:06] Mary Soldano: Plus your interim P& L statement, um, or there’s other lenders out there who they may need three periods to cashflow at that point. And so that’s why it’s really important to make sure when you’re talking with a prospective SBA lender, you’re learning what their rules are that you’re asking, okay, is this an SBA thing or is this a, your specific credit box thing?
[00:10:23] Mary Soldano: You know, if you’re able to get access to that capital somewhere else or not. Um, yeah.
[00:10:30] Frank Felker: Okay. Now, um, geez, it’s funny. Okay. Um, There’s so many questions that come to my mind and we could just go down multiple rabbit holes chasing after these questions I’d like to get answered. But instead, I’m going to try to stick to my, uh, to my outline here.
[00:10:46] Frank Felker: Um, it’s become clear through what you’ve said that I, I’m going to put myself in the position of the business owner who wants to get a loan. I’m borrowing from you and, and Drew Lyon or whomever I’m borrowing from, not from the government. And you’ve also made it clear that Different lenders have different criteria and some will look favorably on different types of loans and so forth.
[00:11:10] Frank Felker: So, if I’m looking for an SBA lender, how do I start that search and what should I be looking for?
[00:11:18] Mary Soldano: Yeah. So there’s a number of different ways you can find an SBA lender. Um, it depends on sometimes it depends where you’re located. So you could go to your local lender, your local banks and see if, do they provide SBA loans to people?
[00:11:32] Mary Soldano: Um, there are a lot of lenders these days who are on interviews, right. Or a podcast like this one, for example, um, So you could reach out to me for an SBA loan if you’d like. Or, um, there are, so LinkedIn has become a huge power source of just like referral networks for SBA. I’m probably, most of my news feed is just tons of SBA lenders asking, Hey, you can do this deal.
[00:11:57] Mary Soldano: Here’s a recent deal I closed. Um, and then there also are still traditional loan brokers out there. There’s a couple of really great ones who specialize specifically in SBA lending. Um, and then there also are business brokers out there. So if you are in the process of buying a business, um, you could be also utilize your business brokers contacts.
[00:12:16] Mary Soldano: Um, you could also go to, there’s just tons of different ways. We’re all over the place. So it’s no, you
[00:12:22] Frank Felker: guys are not doing a good job hiding from us. You want us to find you.
[00:12:26] Mary Soldano: Yes, but it is important. It really kind of depends on what you’re asking for is who you should work with. So if you have a really strong deal that cash flows really well, it’s fully secured by commercial real estate, you may be able to go to your local bank and get an amazing rate and they may be able to help you.
[00:12:43] Mary Soldano: They may take a lot longer to do that, but you’re, it depends on what you’re paying for. You may get a really better rate at the end of the day where there’s some national lenders, um, like us at Shoe Lion and there’s a number of other ones in the country who we work a little bit faster and we are okay with the true, just cash flowing deals with a very little collateral.
[00:13:01] Mary Soldano: Um, So it really, it’s like deal by deal specific depending on what you need.
[00:13:06] Frank Felker: But is there any way for me to know, uh, for example, let’s say I own a restaurant, how to find an SBA lender who likes restaurants? Or is that just something I can, maybe I’ll speak to the first one says no, and I should ask them who might say yes.
[00:13:22] Mary Soldano: Yeah, I would, there’s not really, so there is the list of the top active lenders in the country. You can find that on the SBA’s website. Um, we just cracked that top 100 list as a credit. Oh, that’s great. Um, but so you can go on that list and typically like whoever’s in the top 100, they’re going to be more apt to doing a bunch of different industries because they’re actually.
[00:13:42] Mary Soldano: It’s a good place to start. Um, I would also advise once you get a lender on the phone, be very upfront and direct about, Hey, this is the industry I’m working in. Here’s the hair on the deal, right? Like whether there’s no collateral or I had something happen on my credit last year, be very, very upfront about that.
[00:13:58] Mary Soldano: That lender will appreciate it. They’re going to know if their credit team can mitigate it, or they’ll know right away if they need to pass you off to a friend or a colleague to help you get that transaction done. Um, I’ve seen a lot of folks. Over the last couple of years, they call and they ask you a million questions.
[00:14:14] Mary Soldano: And then at the end, they’re like, Oh yeah, and this is what I’m looking at doing. And you’re like, I can’t do it here. And so if you’re very upfront about what your situation is and what you’re finding, then that lender will be able to tell you. Very quickly, if they’re able to do that deal or not.
[00:14:30] Frank Felker: Interesting. Well, and I will include all of your contact information in the show notes, uh, for this interview, wherever you may be watching it right now, Mr. or Mrs. America, uh, whether it’s, uh, audio, video or elsewhere. Um, now tell me about the application process. Um, how is it different from a more traditional loan?
[00:14:53] Frank Felker: Does it take longer? Is it shorter? What’s it, what’s it like?
[00:14:56] Mary Soldano: Yeah, that’s everyone’s favorite question is how long does it take for me to close? It’s probably way way before they even get approved. They’re asking when can we get to the closing table? Um, and so that also is going to depend on the lender that you are working with Of course, it’s lender by lender.
[00:15:11] Mary Soldano: Um, but there are certain things that we’re Re rely on you as that borrower. So every lender can only move as quickly as possible with the information you give them. So a lot of us like to say the average timeline is around 45 to 60 days from start to finish. And I say average. ’cause obviously we’ve seen some that go by faster.
[00:15:30] Mary Soldano: And there’s some that drag out for a little bit longer. Most of that timeline is in collecting paperwork and documentation. Um, and so there’s, I try to break it up into three different phases. There’s your term sheet or like pre approval. Some folks like to call it. And in that phase we ask for a short needs list.
[00:15:48] Mary Soldano: So it’s basically last three years of financials for yourself, your business. personal financial statements, and your resume. And then what is your ask? Are you buying a business? Then we want to see that business’s financials as well. Um, are you buying commercial real estate? We need to know what that address is.
[00:16:04] Mary Soldano: And with that information, most good lenders can do a quick pre underwrite of your transaction and then issue you a term sheet if they’re confident that they’re able to get you to the closing table and get you approved. If you sign that term sheet, then you go into underwriting. So another checklist of documents, um, and then business plan, cashflow projections, um, all of the SBA application paperwork and all of this can be found on the SBA’s website.
[00:16:30] Mary Soldano: Um, and most lenders to also have these like checklists on their website. So you can get very well prepared before starting the process. And then once you’re approved, it’s the closing process. Everyone super excited about the commitment letter they signed and they want to close like two days later. So basic closing timeline is usually around 30 days.
[00:16:52] Mary Soldano: And I say usually again, because it’s going to depend on third parties and on what you’re doing. So if you’re buying commercial real estate and you need an appraisal, That’s going to take some time. Um, typically once you sign that commitment letter, your lender is going to give you a closing checklist.
[00:17:07] Mary Soldano: And then at most institutions, once everything on that checklist is done, you can close a few days later. So it’s really a matter of how quickly can you work and your attorney work, or can you and the seller work together to complete all of those items on the checklist? Um, and I always advise folks, ask your lender a lot of questions.
[00:17:25] Mary Soldano: If you get a checklist and you just like start doing stuff and You don’t know if it’s correct or not. Ask the lender. Say, Okay, this is what you’re asking for a collateral schedule. Am I putting the right information on this? Because if it’s not correct, they’re going to send it back to you and you’re going to have to correct that.
[00:17:40] Mary Soldano: So never be afraid to ask questions in this SBA process. It is. It can be a long process, so it really matters on who you’re choosing to partner with.
[00:17:50] Frank Felker: That’s great. That was a very thorough answer. Um, So I’m picturing myself at the closing table. Do I get funded at the closing table? When do the funds arrive?
[00:18:01] Mary Soldano: Yeah. So most of the time it depends, again, depends on what you’re asking for. So under the SBA seven, eight umbrella, there’s tons of different use of funds that are eligible for financing. I
[00:18:12] Frank Felker: see. One
[00:18:13] Mary Soldano: of those is buying commercial real estate. That would be, you know, everyone gets funded at the closing table title, either as wiring it out Sending checks to the appropriate parties.
[00:18:22] Mary Soldano: You’re able to have working capital as a part of your loan request as well. So let’s say you’re buying a building, but it’s going to take you some ramp up time to move all operations over. You can include three months of working capital expenses. Same thing with buying a business. Um, most SBA 7a loans are closed and funded on the same day under 7a.
[00:18:42] Mary Soldano: You can also do construction loans as well to the commercial real estate you’re operating out of. Those would not all be funded on the same day because you’re going to have to be working with your contractor. Um, so most of the time you are funded the same day, but it’s going to depend on where all of those dollars from the loan are going.
[00:18:59] Frank Felker: Well, I’m going to fall down one quick rabbit hole. If it’s a, if the transaction involves real estate, is there also going to be the typical title search and all the paperwork we might see in a residential purchase?
[00:19:12] Mary Soldano: Of course, all of that. So, um, and it depends on when you want to engage all of that as well.
[00:19:17] Mary Soldano: So there’s folks where they have to meet a deadline. And if they don’t meet that deadline, they’re going to lose that property. They can while the loan before you get officially approved, you can start ordering your appraisal. You do have to get environmental reports in SBA as well, depending on the condition of the property.
[00:19:33] Mary Soldano: So that could either mean a low level risk assessment, or it could mean a full blown phase one. All of those things take time. Um, and then of course all of your recommended title as well. So SBA has certain title requirements that every lender needs to abide by in their title policies.
[00:19:51] Frank Felker: Now, you guys are preferred SBA lenders.
[00:19:55] Frank Felker: Um, can you tell me what the advantage is of working with a preferred lender.
[00:20:01] Mary Soldano: Yeah. So the biggest advantage is that we can do that stamp of approval ourselves without having to submit your entire loan package to the SBA. So there’s preferred lender status. That’s all that means basically that we enter your information to their system called e tran, and then we’re able to pull down your approval number.
[00:20:20] Mary Soldano: Um, they, the SBA did make an update last year where they go through different data checks and To make sure that, you know, you’re a for profit business or your E. I. N. Number matches and social security number hasn’t been used for fraud. So they used to be instantaneous where we could pull that number.
[00:20:36] Mary Soldano: Now every lender has to wait around 48 hours to get that lender. That number. I’m sorry, no matter what the status is. And then there’s GP lenders, which just means general processing. Um, and so that means once you get approved by your bank, you then have to submit that whole loan package to another person at the SBA to also approve it.
[00:20:56] Mary Soldano: Now, it used to take a really long time for GP lenders to get that approval. It has gotten a lot faster in the last couple of years, and you can simultaneously start the closing process. Um, so the biggest advantage is you just know you’re really approved faster with a PLP lender. with where a GP lender, it may take an additional two weeks for that approval.
[00:21:17] Frank Felker: Now you are in the greater Philadelphia area, but is it, am I correct that you are able to help people with SBA loans anywhere in the United States?
[00:21:29] Mary Soldano: Yep, that’s correct. So, um, this past year, a team of us were brought on to Trilliant. They’re based in North Carolina and we were brought on to expand their national SBA 7A footprint.
[00:21:40] Mary Soldano: Um, so I’m based in the Philly area, but I can land anywhere in the country.
[00:21:44] Frank Felker: Henry, the last thing I wanted to ask you about has to do with changes in the SBA approval process or you name it. I’ve heard that there have been some changes in recent years. Can you speak to that?
[00:21:59] Mary Soldano: Yeah. Um, over the last two years, there’s actually been a lot of changes in the SOP.
[00:22:03] Mary Soldano: And so that is the big book of rules that every SBA lender has to abide by. Um, one of the largest, there’s been a lot, but one of the things that I’ll focus on today is around equity injection. And that is for basically for every use of proceeds. And so part of that is when you buy a business, it used to be a requirement that you had to do 10 percent of the total project cost.
[00:22:24] Mary Soldano: You as the buyer had to put in, and if any seller financing was going to count towards that 10%, it would have to be on standby for the full life of the loan. Now, though, they’ve changed that seller financing portion of it to be a little bit more flexible and more favorable to sellers. For example, there are now three ways seller financing can count as equity injection.
[00:22:45] Mary Soldano: It still is for the full life of the loan. So what that means when I say standby is that the seller doesn’t see a penny of their money until you pay off that SBA loan. That’s what full standby means. And so the other options are now partial standby, which would mean interest only payments. For a minimum of two years and then the loan must amortize out or standby for two years only and then the loan must amortize out.
[00:23:08] Mary Soldano: None of those facilities can have a balloon in order for it to count as equity injection. This is huge because it really creates access to capital for folks who are looking to buy businesses and need that seller financing to help bridge the gap in equity injection. A lot of sellers, if you ask them, can I do a standby a note for the whole loan?
[00:23:26] Mary Soldano: They want to see their money faster than 10 years. But some are okay seeing it in year three, you’re getting interest only payments in the first two. That’s the biggest change. Again, that is like per the rule book of SBA, some lenders are abiding by it. Some aren’t. Um, we are using it. We actually, we love seeing seller financing and business acquisitions.
[00:23:45] Mary Soldano: It shows that the seller really believes in the buyer who’s going to help take their company to the next level. You
[00:23:50] Frank Felker: know, that, uh, your answer there made me think of a question I had intended to ask, which is what sort of term lengths Do these loans normally stretch out over?
[00:24:01] Mary Soldano: So business acquisitions are 10 years, 10 year amortization.
[00:24:05] Mary Soldano: If it includes real estate, that is more than half of the proceeds. It can be stretched out to 25 years.
[00:24:12] Frank Felker: Great. Well, Mary Saldana, thank you so much for joining me today on Radio Free Enterprise.
[00:24:18] Mary Soldano: Thank you for having me. It was an honor to be here.
[00:24:21] Frank Felker: Thanks again to Mary. And thank you for joining us. Until next time, I’m Frank Felker saying, I’ll see you.
[00:24:30] Dude Walker: You can’t seem to turn a profit? Is that what’s eating you, Sparky? Well, you’ve come to the right place. Radio Free Enterprise.
