In still-frosty credit market, an SBA loan guarantee can be a deal-maker
A bill currently being debated by federal lawmakers would require public disclosure of recent U.S. Small Business Administration (SBA) lending information through creation of a user-friendly database.
This Communicating Lender Activity Reports from the Small Business Administration Act (or CLEAR SBA Act, S.B. 537) was introduced by U.S. Sen. Mary L. Landrieu (D-La.).
Information on this database would include the number of loans underwritten by the lender; total dollar amount of loans; the ZIP code of those covered; the lending recipient’s industry; whether the company is existing or new; and whether the business is owned by a woman, veteran or is among “socially and economically disadvantaged small-business concerns.”
At press time the bill had been referred to the Senate’s Small Business & Entrepreneurship Committee, which Landrieu chairs. The committee oversees the Small Business Administration.
Democrat Landrieu has advocated for small businesses during her Senate tenure. She is quoted as saying in a recent Associated Press interview that businesses are challenged with “a never-ending cycle of uncertainty that makes business investment risky and is holding back growth” as they attempt to maintain viable operations.
“It’s hard to pinpoint exactly when our economy, including small business expansion, will really take off,” Landrieu said in an April 2013 AP interview, “but we are seeing encouraging signs.”
Among those signs are healthy SBA lending activity by major financial institutions across the country. For example, in the SBA 7(a) category TD Bank made 647 loans totaling more than $205 million in 2012. JPMorgan Chase Bank made 4,338 loans totaling almost $512 million. The top lender by volume, Wells Fargo Bank, underwrote 3,173 loans with a value of more than $1.2 billion.
Each of these three financial institutions have branches in Connecticut.
The SBA 7(a) program is designed to encourage lenders to service small businesses that might not have the strongest business history. Another popular SBA loan program, the SBA 504 program, focuses on loans targeted at real estate and equipment acquisition.
“Particularly in Connecticut, we’re seeing a lot of activity in the IT market,” says Joseph A. Vanella, Northeast region manager for Wells Fargo. In addition to IT businesses, the bank also is making a number of SBA loans to manufacturing companies in the state, he says.
“Manufacturing companies are looking to refinance debt, so there’s a lot of manufacturing activity,” says Vanella, who adds that manufacturers “may be looking to make equipment purchases or own their own real estate. SBA allows small businesses to lock in their cost with low rates.
At the same time, “We’re not industry-specific,” says Vanella of Wells Fargo’s lending policies. “It’s a wide range. The SBA market encompasses a number of different companies and a number of different industries. We see everything, and we’re open to all types of businesses.”
Among new-business clients, Vanella says Wells Fargo is seeing more business acquisitions as opposed to start-ups.
Those businesses “run the gamut” from health care to manufacturing, he explains.
Helping Wells Fargo make sound SBA loans are the businesses themselves, Vanella says.
“We’re seeing good, solid business plans from borrowers,” he says. “In our group we do a lot of the real estate expansion financing. So we like to accommodate a business with that.”
Qualities of a well-placed potential client include the obvious — the ability to repay debt, for example — and particulars of an individual company.
“Does the business model make sense?” says Vanella. “Management — that’s a big deal. Experience level, their knowledge of the industry.”
He adds that companies are educating themselves about the availability of SBA assistance.
“More borrowers are cognizant of the SBA program,” he says. “More established companies are using it.”
Vanella says Wells Fargo hasn’t made any major adjustments as a result of the recession.
“We really haven’t changed our credit philosophy. We really haven’t changed our policy,” he notes.
What the bank has done is continue its emphasis of SBA support.
“We are dedicated to the small business market,” Vanella says. “We have a dedicated SBA group. I have salespeople going out and looking for SBA [clients]. “In any kind of environment we try to leverage the SBA program for the best solution [for the business]. We’re actively involved and engaged in the small-business market.”
Companies that approach Wells Fargo for an SBA loan should be specific about their plans, says Vanella.
“We really want to know exactly what their needs are,” he says. He adds that the bank is seeing an increase in companies owned by women, minorities and veterans — major SBA emphases.
“We’re seeing increases in all of the above,” Vanella explains.
This March Wells Fargo announced a total $55 billion lending commitment to women in the 25-year period ending with 2020, updating its previously announced pledge in 1995. To date, the bank has provided more than $38 billion in capital to companies owned by women.
In addition, says, Vanella, “We’re promoting [specifically] to veterans,” says Vanella.
So is TD Bank, which has become part of a program to help military veterans become franchise owners. The initiative, announced earlier this year, is in partnership with the International Franchise Association and a pilot group of franchises that includes Dunkin Donuts, Domino’s Pizza and Baskin-Robbins, among others. Features include preferential interest rates.
Richard Bradshaw, head of SBA lending at TD Bank, says a military background provides skills that are transferable to the business world.
“[Companies owned by veterans] is a major push for the SBA in general. It also happens to be a major push for TD Bank in 2013,” says Bradshaw, himself a retired U.S. Navy reservist. “The reality is, we’re doing this because it’s the right thing to do.”
TB Bank, whose footprint extends from Maine to Florida, touts itself as the largest SBA lender within that Eastern seaboard region.
In terms of new vs. established client businesses, “I would say I’ve seen more business expansion” than start-up entrepreneurial lending activity, Bradshaw explains. A “pure” start-up, he says — a company constructed around a product offered/created by the owner that is not tied to a traditional professional service — is “going to be a challenge,” Bradshaw says.
“I think one of our duties is also protecting the client” with regard to the realities of the marketplace, he says. The bank also likes to see clients that don’t have what might be considered a murky business history.
“If there’s lot of litigation,” for example, “we don’t need to understand it — we’re just probably not going to play ball.”
In general, TD Bank is “very focused on strong franchise concepts,” says Bradshaw, adding that probably the bank’s biggest single category of franchise clients, in terms of lending dollars, is day-care providers. These are established day-cares, he says, noting, “We like them [the franchiser] to have 150 stores or more.”
Much of TD Bank’s SBA business also is with the professional-services sector.
“We’re very focused on the professional — dentists, veterinarians, CPAs, MDs, lawyers,” says Bradshaw, adding, “They traditionally have very low default rates.”
Many clients are looking to purchase real estate or “another like entity,” or to refinance existing debt, Bradshaw explains.
Bradshaw says TD Bank offers a “team” approach to the client, for example providing, in addition to loans, other financial-services offerings such as a business deposit account and/or a personal account if needed.
Quinnipiac Bank & Trust, headquartered in Hamden, prides itself on being a lending institution that caters to local businesses.
Like some of the larger banks, “We actually stepped up the SBA lending,” says Richard Barredo, Quinnipiac’s executive vice president. “We actually lend to small businesses that couldn’t qualify for it otherwise.”
And like bankers at other financial institutions, Barredo is seeing a number of business owners take advantage of current low interest rates, approaching Quinnipiac Bank to refinance.
Barredo has not experienced many outstanding trends over the past few years, he says.
“If anything, we’re probably seeing fewer start-ups,” he says.
One of the most important elements that will compel Quinnipiac Bank approve a loan is a sound business plan, Barredo says.
“That’s the first thing to do. We want to know what the company’s all about,” he says.
But even an owner with what might be considered an imperfect business should not shy away from approaching Quinnipiac for an SBA loan, Barredo adds.
“We take the time to learn the business and understand their situation,” he says. “We opened the doors as a community bank with a mission to service the needs of the small-business community.”