SBA Lending Boom

Hen House Eatery

Administrator McMahon wants to change agency’s ‘best kept secret’ label

The head of the Small Business Administration knows a thing or two about marketing. SBA Administrator Linda McMahon and her husband, Vince, transformed a small wrestling organization into a global entertainment venture now known as World Wrestling Entertainment. Television deals and merchandising were keys to the company’s promotional success; banks and borrowers are the instruments of visibility for the SBA.

Calling the SBA “the best kept secret in the government,” McMahon, appointed SBA Administrator earlier this year by President Donald Trump, said the agency will unveil a new branding strategy to elevate SBA’s profile.

“That’s my whole background – marketing and promotion,” McMahon said during an Oct. 17 trip to Minneapolis where she visited with owners of the Hen House Eatery. “That’s part of what we have been doing at the SBA. April 2018 is when we will roll out our new messaging and marketing plan.” The trip was part of McMahon’s “Ignite Tour” in which she is visiting with business owners around the country.

Strong program numbers

Not that the SBA programs are languishing. In its most recent fiscal year, which closed Sept. 30, the SBA said it approved more than 68,000 loans to small businesses totaling more than $30 billion. The numbers represent record volume for the agency launched in 1953. In fiscal year 2017, the SBA guaranteed $25.44 billion through 62,430 7(a) program loans. Last year, the SBA says it added 241 new lenders and that at less than 2 percent, its loan guarantees experienced a near-record-low loss rate.

SBA offices in Milwaukee, Minneapolis, Chicago and Indianapolis each reported robust loan volume. The SBA approved 2,243 loan guarantees in Illinois, on $1.1 billion in financing. The Minnesota District office noted that out of 68 district offices, it ranked No. 10 in the number of loans approved with 2,056, totaling $681.2 million. SBA guaranteed 1,539 loans on $601 million in financing in Indiana and 1,503 loans worth $650.6 million in Wisconsin.

As strong as those numbers are, McMahon wants the agency to facilitate the financing of even more small businesses. “I addressed community bankers out in Washington, D.C., earlier this year and they were all looking forward to the regulatory environment being better so that they could get back to the job of being community bankers,” McMahon said during a brief conversation with press during her Hen House Eatery visit. She said one of the purposes of her tour is “to let more people know about the SBA so that they will come talk to community banks.” She added that the SBA wants to engage more lenders in its programs.


Four days before McMahon came to Minneapolis, the SBA published its Standard Operating Procedure document, which it designates “20 10 5(J).” Set to become effective Jan. 1, 2018, the documents contain changes that should make the various SBA programs more versatile and user friendly.

“Some of the biggest issues that we dealt with in this update were to include things that became available through a final rule on Sept. 20. That rule allows for us to permit partner buyouts as an eligible transaction in both our 7(a) and our 504 loan program,” said Dianna Seaborn, director of the Office of Financial Assistance in the Office of Capital Access. The change, she said, “will save a lot of costs in the structuring of loans by lenders for their applicants who want to purchase their partner’s interest in a business.”

“Sometimes in the past, we would see situations where one partner wanted to leave the business and the remaining partner would have no other option than to either sell that business or shut it down, and so we wanted to prevent that as much as we could,” added Bill Manger, associate administrator, Office of Capital Access.

The new SOP also makes all co-ops eligible for financing by SBA guaranteed loans. “Previously, we restricted the program to producer co-ops, but now we allow the marketing co-ops and we basically removed any obstacle for a co-op business to come in,” Manger said.

Manger said the SBA also is easing the collateral requirements on guaranteed loans of $350,000 or less. In another development, he said the agency will now maintain its own franchise directory, which should make it easier for lenders to finance franchise businesses.

The most active SBA lenders are the biggest names in the industry: among them, Wells Fargo, JP Morgan Chase and U.S. Bank. Manger said that while thousands of banks make SBA loans, far more are eligible to use SBA programs. “We would love to see more of the smaller banks come in and do more loans, especially in rural areas and inner cities,” he said. “That’s a strategic goal we have.”

More community bank participants wanted

“We’re always looking for ways to identify and remove unnecessary procedures because generally, it’s the cost and the time it takes to do a loan that makes the difference as to whether a lender comes this way or not. Smaller banks obviously have lower legal lending limits and the SBA programs would benefit those banks,” Seaborn added. She recommended SBA One, a platform designed to streamline 7(a) loan processing.

Some banks that avoid making SBA guaranteed loans cite a possibility that the SBA won’t repurchase the bank’s loan if it goes bad. But Seaborn said that fear is unfounded.

“The reality is that we purchase more than 95 percent of the loans presented for purchase at our guarantee purchase centers,” she said. “I think the SBA demonstrates a very reasonable level of tolerance for a mistake that does not impact the integrity of the program and to work with lenders in that regard.

“There seems to be this thing out there that there’s some inference, but our purchase track record is extremely high. We have an expedited process for purchasing those smaller loans that might come from the community banks. We go a long way with the lenders who behave reasonably to honor our commitment to them,” she said.

“We want to encourage all of the lenders in the Midwest to participate in our programs to a greater degree because we really think it’s a fantastic program and a way that we can get capital to those small business entrepreneurs who have no other choice to get capital without unreasonable terms,” Manger said. “We want to help grow the economy and create additional jobs and we think our program does just that.”