Tag: Lending Math

Know Your Premium Before You Underwrite Your Next SBA Loan

SBA Lending

There is an argument to be made that a bank should underwrite every 7(a) SBA loan that comes its way. With a 75% guarantee and an average 10% premium net of cost and operational risk, that imputes a 30% cumulative probability of default. That is, as long as the bank thinks that there is a 70% chance of repayment, the bank should make that loan. This leaves a whole lot of room for error. Even if you underwrote nothing but one of the riskiest of major sectors, restaurant franchises, you would still be OK as their historic cumulative default rate is approximately 28%.

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