February 14, 2018

Developing a Strategy Around SBA Lending

– J. M. Chuck Evans, President, Capital Growth Solutions

My friend Tim Terry, President of SBA Advisors, joined me in hosting a breakout session on developing a strategy around SBA Lending.  It was so well received, I thought I would summarize the presentation in this month’s article.

SBA Lending can be an effective tool in providing small business with better access to capital and lenders are signing up to provide these programs at record levels. This is evident by the number of banks, credit unions, Certified Development Companies, and Community Development Financial Institutions that are adding SBA products to their offering.  The National Association of Government Guaranteed Lenders hosts several SBA conferences each year, and the last few years these conferences have been sold out.

The secondary market for investors looking for a relatively safe investment is still very robust.  Lenders can sell the guaranteed portion of the loan for premiums that have been as high as 19%.  However, this is not the reason you should entertain this specialized lending because premiums can change, as they did in 2008. If you, as a lender, are interested in providing small business with better access to capital with some of the risk mitigated, this is a program you should consider and the time could not be better.

There are however, barriers to entry that make this jump a little uneasy for new lenders to enter this type of specialized lending.  The shortage of specialized SBA staff, ever changing SBA Standard Operating Procedures and the fear of losing the guaranty cause some lenders to reconsider.

There are alternatives where lenders focus resources on business development and outsource the processing, closing, and servicing functions.  There are approximately 6-10 “national lender service providers,” such as Capital Growth Solutions, in the market along with many “mom & pop” providers servicing one or two lenders locally.  This is virtually an unregulated part of the industry that is getting more and more attention as Congress pushes the SBA to be better stewards of the program.  Those of us who have been in the industry and want to make sure this program is “done right” welcome the additional scrutiny.