The SBA responded with a pilot program designed to test alternatives that would ease the documentation requirements of the lenders in processing these loans, and encourage their participation on behalf of smaller borrowers. The result was the LowDoc program, which has been a huge success, more than doubling the number of participating small businesses benefiting from the 7(a) program.

The SBA LowDoc program pilot was recently extended to September 30, 2001, and expanded to cover loans up to $150,000. The agency consolidated LowDoc processing in one central location to be able to respond to guaranty requests in thirty-six hours, thereby assuring smaller borrowers quick service. SBA relies on credit scoring tests to make quick determinations on whether to grant a guaranty for these loans.

Borrowers should understand that lenders still must approve all loan requests prior to the SBA’s review, and the program’s reduction-of- information requirement is designed to lower the lenders’ burden—not borrowers’. Most lenders will still require enough data to fulfill their need to thoroughly evaluate a loan request against their own credit policy. However, the LowDoc program does enable the lender to move forward with a guaranty request with less documentation, reducing their time and effort in facilitating smaller loans.

Also, while the LowDoc program has been enthusiastically embraced by many lenders across the country, many have chosen to not participate. It is a matter of credit risk (small company vs. large company) and the lender’s ability to effectively address their chosen marketplace (real estate loans vs. working capital loans).

* Source The SBA Loan Book

The comprehensive handbook for obtaining a Small Business Administration guaranteed loan.