SBA and Alternative Small Business Lenders
April 30, 2014
By Bob Coleman
Editor, Coleman Report
Wall Street Journal blogger and friend Ami Kassar rebutes another friend, Lendio’s Brock Blake, who argues SBA’s lending programs should be expanded to the emerging alternative small business lending niche.
Brock poses the question, “Is there a place within the SBA where alternative, non-bank lenders, can fill the gap left by traditional lenders who seem to be moving upstream? And, can we leverage what non-bank lenders, and others like SmartBiz, are doing to streamline the loan application process to make capital more available to Main Street?
“Let’s face it, banks aren’t the only place Main Street can go for capital any more. Is there a way the SBA can allow all small business lenders to participate in the SBA?”
Ami counters, “But in my opinion, the U.S. Small Business Administration — a government agency supported by taxpayer funds — and alternative lenders — private lenders that take on higher risk loans in exchange for higher rates — are opposite by definition. Thus, the idea that the SBA would guarantee loans by alternative lenders is akin to the great apples-versus-oranges debate. It’s not a realistic or intelligent scenario to hope for.
“The SBA’s mission is to encourage small-business growth through its guarantee program, which encourages lenders to take on riskier loans then they ordinarily would. A typical SBA loan would have a 10-to-25-year amortization period and an interest rate of about 5%. With loans like this, small-business borrowers can keep innovating and keep expanding to the benefit of the overall economy.
“On the other hand, alternative lenders fill the gap for small-business owners when SBA loans are not an option due to weak financials, slow cash flow or poor credit. These non-SBA lenders give money at very high annual-percentage rates — from 30% to as high as 200%. With rates like these, alternative lenders can take on much greater losses then SBA lenders, which allows them the luxury of using much faster and more limited underwriting than would be required for an SBA loan.”