SBA 504 Refi Back in Play?

February 12, 2013

Here is the balance of the conversation we had with Kurt Chilcott, President and CEO of CDC Small Business Finance.

Check out his comments that he believes SBA 504 refi may be coming back to help Main Street entrepeneurs, the continuing problems with the SBA 504 secondary market, and the need to simplify and streamline the SBA 504 loan process.

Coleman Report: CDC Small Business Finance CEO Kurt Chilcott

Bob Coleman: Let’s talk about what’s going on in the markets. The first thing I want to ask you about is the SBA 7(a) Secondary Market is rocking and rolling; we’re hearing reports of 118, 119 sales. 504 is still a challenge. How do we fix that for the 504 lender?

Kurt Chilcott: Well, I think it’s really the difference between a Federally Guaranty paper and what is in essence a conventional paper, which is the 504 First Trust Deed; and obviously the demand for Government paper is much higher than it is for the conventional paper. The secondary markets have not come back to where they were. This is why we have the FMLP program, the First Mortgage Loan Guaranty Program, for a couple years there to try to stimulate that conventional loan market for 504.

Bob: Well that’s expired, and so has that 504 Refinance; any chance any of those two programs get extended?

Kurt: Yeah, I think that’s a great question, that there is growing support, I believe, for bringing back the Debt Refi program. We are seeing support in Congress in both the Senate and the House; and the real barrier to that is just if there’s a strong ideological objection just to the program. It’s not about whether the program was successful; it’s not about whether it’s meeting a need, which it clearly is; it’s more about ideologically is this an appropriate role for the Government; is there some potential cost to the Government down the line. But otherwise we’re seeing increase in support for the Debt Refi and bringing that back; and we’re hopeful when we travel to Washington in early March that we’re going to be able to send that message and get even more support.

Bob: And also very importantly, there’s a number of entrepreneurs that are out there who definitely need this refinance segment to take care of a balloon payment or their problems, and to get back to running their business and hiring people.

Kurt: Absolutely. This is really about accessing equity that’s trapped. And if they can access that equity they have capital that they can put into equipment, into hiring new employees, and into expanding. And that capital is not always readily available through working capital or other means, and we need to be able to get that capital out of their real estate and into their business.

Bob: The new Executive Director of NADCO, Beth Solomon, has made a commitment, or a challenge, to the industry that hey, we want to double SBA 504 lending in four years. How can that happen?

Kurt: Well first of all, I want to acknowledge Beth for putting us all on notice that she has a great goal for us, or what would be called a big hairy audacious goal for the industry; and I credit her with really putting that out there because it starts to make you think about how do we move beyond incremental improvements and how do we really make jumps in that. So how are we going to do that? I think really there’s three main areas that we need to address in order to double volume. One is this is still a program Bob, as you know, that is a secret almost. What we have to make sure is that small businesses know about this program and that it’s something that they’re aware of and if they ask their bank or other lenders about. So we need to really significantly increase the awareness of the program in the marketplace, and Beth, I think, is the person to do that with her marketing background and she’s already hard at work to raising the profile of the program.

Secondly, we have got to get more banks or non-bank lenders, but more lenders in general into the program. The key indicator for how well the program is doing in my opinion is how many lenders we have participating in the program. So we have got to get that number up; so we have to reach out to those lenders; we have to go back to recruiting lenders into the program; and getting them, even if they’re not an SBA lender, they can still be a 504 lender.

Bob: And the third thing?

Kurt: Third thing is we’ve got the enemy, and it’s us; and that is that we have to simplify and streamline the process for the 504 program in partnership with the SBA

Bob: The old execution of strategy problem.

Kurt: Absolutely

Bob: We’ve got to not only devise the programs, but you’ve got to deliver them.

Kurt: Because it’s got to be easier for people to access; it’s got to be easier for banks to participate; it’s got to be easier for small businesses in terms of paperwork. Speed is important, efficiency is important, and we’ve got to work on all those things.

Bob: Well you certainly aren’t talking about anything that’s not known to any growth company or any industry leader throughout any industry; you can be talking telecommunications, banking, serving hamburgers; it’s all executing strategy.

Kurt: Absolutely, back to basics.

Bob: Last question, Kurt, just came over the wire. Karen Mills is resigning after a strong run as SBA administrator. Tell me what you think she will rank in terms of administrators, how do you think she did for the industry?

Kurt: Well, what I think is that Karen Mills has overseen a time period of great challenge but also tremendous exposure and for small businesses. We have been on the front burner with this administration in the news since she came on board. The priority has been how are we going to get small businesses the capital so that they can grow so that we can revive the economy. So we have seen unprecedented numbers of White House events; the profile of the SBA has been raised tremendously; and we have had an extremely collaborative working relationship with the SBA. So in my opinion her legacy is going to be that she raised the profile of the Agency, of small business in general in our country, and hopefully laid the foundation for a stronger Small Business Association and better lending programs moving into the future.

Bob: Very well said. Kurt Chilcott, President and CEO of CDC Small Business Finance, San Diego California. Kurt, thank you for joining us.

Kurt: Thank you so much Bob, good to be with you.