Why Local Market Knowledge May Matter in SBA Lending

An SBA loan application includes plenty of numbers. Revenue, cash flow, debt obligations, projections and collateral may all play a role in evaluating a financing request.

But numbers do not always tell the entire story.

Where a business operates may influence everything from customer demand and seasonality to commercial real estate costs and opportunities for expansion. That is one reason local market knowledge may be valuable when working with an SBA lender.

A lender who understands the market where your business operates may be better positioned to understand the context behind your financing request and the opportunity you are pursuing.

Local context may help tell the story behind the numbers

Two businesses with similar financial statements may operate under very different circumstances.

A restaurant in a high-traffic Chicago neighborhood may have different opportunities and challenges than one in a suburban business district. A manufacturer purchasing a larger facility may need to consider local property availability and transportation access. A service business opening another location may be responding to customer demand in a rapidly growing part of the market.

These factors do not replace the financial information required during the lending process. However, they may provide helpful context for understanding a business's performance, needs and plans for growth.

A lender familiar with the area may already understand factors such as:

• Local business and consumer activity
• Commercial real estate conditions
• Neighborhood and community development
• Regional industry trends
• Seasonal patterns that may affect revenue
• Opportunities and challenges associated with particular markets

That familiarity may help create a more informed conversation about what a business owner is trying to accomplish.

Market knowledge may be especially useful for commercial real estate

Commercial real estate is one area where local knowledge may be particularly relevant.

An SBA loan may help an eligible business purchase owner-occupied commercial real estate, whether the business is moving from a leased property, expanding into a larger facility or purchasing a location as part of a broader growth plan.

When evaluating an opportunity, the property itself is only part of the picture. Location, surrounding development, accessibility and the local commercial real estate environment may all be considerations for the business owner.

A lender who knows the area may be familiar with local commercial corridors, property trends and the types of businesses operating nearby. That perspective may help the lender better understand why a particular property or location is important to the company's plans.

Local knowledge may also matter when buying a business

SBA financing may also be used for eligible business acquisitions.

For an entrepreneur purchasing an existing company, understanding the business's local market may be an important part of evaluating the opportunity. A company's historical financial performance tells one part of the story, while its reputation, customer base, competitive environment and position within the community may provide additional context.

For example, a long-established local company may have customer relationships or a market position that would not be immediately apparent from its financial statements alone.

A lender familiar with the market may be better equipped to understand that context while working with the borrower through the financing process.

Expansion plans depend on more than past performance

Businesses typically pursue financing because they are looking forward, not backward.

A company may want to add equipment, open another location, increase production capacity or acquire a competitor. Historical performance may help demonstrate how the business has operated to date, but the financing request may depend partly on what management expects to happen next.

Local market conditions may be relevant to those plans.

If a business is opening a second location, for example, the owner may be responding to customer demand in another part of the region. If a manufacturer is purchasing equipment, the investment may be tied to demand from customers or industries concentrated nearby.

Understanding those market dynamics may help create a more complete picture of the reason behind the financing request.

Relationships within the local business community may help, too

Business financing often involves more than the borrower and the bank.

Depending on the transaction, attorneys, accountants, commercial real estate brokers, business brokers, appraisers, insurance professionals and other advisers may become involved.

A community-focused lender may have experience working within this local network and understand how different parties fit into the process. While every transaction and timeline is different, familiarity with the local business community may make it easier to communicate about the details involved in a financing request.

SBA expertise still matters

Local market knowledge is valuable, but it is only one part of choosing an SBA lender.

SBA financing has specific eligibility, documentation and underwriting requirements. Working with an experienced SBA lender may help business owners understand what information is needed, what financing options may be available and what to expect during the application process.

The combination of SBA lending experience and local market knowledge may be particularly valuable for business owners pursuing more complex growth opportunities.

Work with a lender who understands your business and your market

At Centrust Bank, a division of SmartBiz Bank, N.A., we combine SBA lending experience with a longstanding commitment to the businesses and communities we serve. Our team takes the time to understand more than the financing request. We want to understand the business, the opportunity and the local market behind it.

Whether you are purchasing commercial real estate, acquiring a business, expanding operations, investing in equipment or pursuing another growth opportunity, Centrust Bank may be able to help you explore SBA financing options and determine which solutions may fit your business needs.