C-Suite Wednesday — SBA OIG Targets Live Oak Bank’s Poultry SBA 7(a) Lending

June 1, 2016

By Bob Coleman
Editor, C-Suite Wednesday

C-Suite Wednesday — SBA OIG Targets Live Oak Bank’s Poultry SBA 7(a) Lending

Live Oak Bank’s SBA niche lending strategy is drawing the attention of SBA’s Inspector General.

The bank entered the poultry farm market in 2014 — approving $611 million of loans to 309 farms for an average loan size of just under $2 million through the end 2016 — an average of just over $200 million per year.

The targeting by the OIG toward Live Oak Bank explains part of the backstory for last week’s Small Business Chair David Vitter’s proposed lender limitations of industry concentrations and 100% CRE financing — as well as rewriting the definition of “credit elsewhere.”

Normally the OIG is concerned with poor credit quality loans, but not in this audit.

Live Oak has picked another lending niche with excellent repayment and very low loss rates.

Not one of Live Oak’s poultry farm loans has a SBA guaranty loss.

Now, the OIG says these excellent loan performance rates may violate SBA’s credit elsewhere rule — where a small business is only eligible for SBA financing if it cannot obtain financing “elsewhere.” I guess the theory is if a industry niche has low loan losses, than anybody will make the loan.

From the SBA OIG April 2016 update of its auditing division work plan:


Determine the extent to which (1) SBA loans to poultry related industries meet all SBA requirements for eligibility, repayment ability, and credit elsewhere; and (2) other Federal loan programs better serve this industry.


Over the last decade approximately 3,500 SBA 7(a) guaranteed loans totaling $2.1 billion have been approved and disbursed to businesses operating within the poultry farming industry.

Until recently, the majority of these loans and their associated dollars (approximately 65 percent and 48 percent respectively) were made by a single SBA lender.

Recently, a new SBA lender has emerged in this industry, accountable for nearly 73 percent of the total dollars approved to poultry farms over the last 3 years.

The average loan size of $2 million approved by this lender during the period was at least two times greater than any other lender.

Concerns have also been raised regarding the influence and control that chicken corporations have on chicken growers under contract that may qualify as affiliation.

Further, the historic SBA default and loss rates for loans to the poultry industry of 2.8 percent and 0.6 percent, respectively, are extremely low, bringing into question the reasons these businesses cannot obtain credit elsewhere from commercial lenders

SBA estimates the start date of the audit will be the first quarter of 2017.

Up Next: Your responses to our poll of the Small Business Lending Oversight Act of 2016.