January 18, 2017
By Bob Coleman
Editor, C-Suite Wednesday
C-Suite Wednesday — In Defense of SBA Lending
Students in Coleman’s SBA 7(a) Loan Underwriting class are asked to submit an elevator pitch in defense of SBA’s lending programs.
Here are a few of their well-reasoned responses.
SBA lending programs are necessary for a vibrant Main Street as access to capital is the #1 complaint among small business’ on why they’re unable to start-up or expand. As Banking credit parameters are beyond the reach for small business’ to meet, Government Guaranteed Lending is the bridge that meets both parties requirements.
Small business is the cornerstone of the US economy, where it accounts for 2/3 of the entire capitalization. Without SBA lending programs, it would be difficult for small businesses to acquire the capital that it needs and be protected against discrimination that they can be faced with due to their smaller size.
During the Great Recession, we learned about Wall Street businesses that were “too big to fail”. Without SBA lending programs, many business on Main Street might be “too small to succeed”. Banks don’t want to spend a lot of time and resources on smaller loans with little return. SBA support makes small-business lending risk manageable and profitable for the banks, especially community banks. Together small businesses and small banks keep Main Street vibrant and help drive the economy in a virtuous circle.
In the age of international business and mega corporations it is easy to forget how much of an impact our small businesses make in our economy. With a high failure rate among these new and unproven business, lenders are justified in their hesitancy to give low rates and quality loans without insured recourse. The SBA program is essential in bridging that confidence gap between lender and business. When a lender is given the ability to federally insure their loans to small businesses, it fosters new and innovative business that would have otherwise been smashed in their inception. SBA champions small business and gives the “small guy” a chance to show the world what he has to offer.
The SBA helps Main Street USA to keep it vibrant, is by allowing small business owners access to capital that they could not get elsewhere. Bankers have to look at what happens if a deal goes bad, and one of the items bankers look at is collateral and small business will lease a property and the physical assets are of li!le value. The SBA allows bankers to enhance a deal when there is a shortfall in collateral, when all remaining parts of the deal are fine. The SBA guaranty lending program mitigates risk to bankers.
SBA loans are vital to the Main Street economies that make up a majority of our nation’s private industry. The reason SBA loans are vital are because they provide easily accessible and inexpensive extra capital that small businesses can borrow in order to grow their business or pay for operating expenses in times of need. The more accessible and reliable SBA loans become the more Main Street can flourish without being impeded by financial obstacles that slow growth.
SBA allows Banks to lend to underserved businesses. There are several groups that are deemed too risky by most banks such as Startups, companies that are profitable but have weak cash flow, businesses lacking sufficient liquidity for a downpayment etc. The SBA is vital for many small businesses to obtain the capital/credit needed to operate and expand.
Lending programs provided by the SBA are a crucial component of a growing and thriving economy. Since its inception in 1953, the Small Business Administration has played a key role in preserving competitive enterprise and strengthening the American economy. SBA helps small business owners remain the engine of this economy by offering higher loan to values and lower debt service coverage ratio requirements than most conventional loan products. Fifty-five percent of all employment in the U.S. is attributed to small businesses.
SBA loan programs, particularly the 7(a) program, help maintain a vibrant main street by providing financing that is not available through traditional bank loans. Three ways that an SBA loan can assist Main Street businesses are:
1. Start-up business – that new business needing funds to get their doors open but the owner doesn’t have the funds to do so. This keeps the storefronts filled with locally owned enterprises.
2. Business Acquisition – for that business whose owners are ready to retire and the buyer doesn’t have the funds to purchase the business. This keeps the existing business a going concern.
3. Real Estate Purchase – this allows the business to move from being a tenant to owning their own building. Funds can also be provided to renovate the building.