🔒CT outpaces nation in SBA lending growth

Q&A talks with Gregory Gould, vice president and Small Business Administration relationship manager at Webster Bank, about SBA loan activity and trends in Connecticut.

Q. The SBA approved 776 Connecticut loans worth $314 million in its recently completed 2019 fiscal year, an 8-percent increase in loan activity compared to 2018. Nationally, overall SBA lending was down. Why did the state buck the national trend?

A. In Connecticut, there is a proactive partnership between the SBA and the financial industry. Local banks have stepped up their small business lending programs, and small business owners are discovering that it’s easier to access the funds they need. They’ve also taken advantage of counseling programs to get “bank ready.”

Q. What is a major trend you are seeing with SBA lending right now?

A. We’re seeing a growing number of SBA loans to finance acquisitions. As Baby-Boomer owners retire, younger generations are buying them out. Often, people who’ve been managing a business for a while are now becoming the owners.

For acquisition lending, SBA 7A term loans offer a 10-year repayment period — or longer, based on the specific use of proceeds, and longer than conventional bank loans of three to five years, which may reduce a business owner’s monthly payments, easing cash flow.

Q. With the economy still strong nationally and relatively strong in Connecticut, it seems like the lending spigot for traditional small business loans is wide open. Why would banks or companies choose an SBA loan instead?

A. In a word: flexibility. Unlike a conventional bank loan, the SBA looks beyond collateral. It also takes into account the business’ cash-flow performance and the owner’s experience. For that reason, the SBA can demonstrate greater flexibility, approving loans to borrowers who would otherwise not have access to the capital needed to start or expand their business.

For example, conventional business lending caps real estate loans at a 20-year maturity, while SBA allows for a 25-year maturity to enhance cash flow of the small business borrower.

Q. With SBA loans being pretty standard across the board, how do banks differentiate themselves from competitors?

A. Not all banks offer the same level of SBA expertise. The SBA designates certain banks as Preferred SBA Lenders, providing a higher level of support. An SBA lender with Preferred Lender status will be cognizant of all the SBA parameters, and therefore should be able to process and close a business loan quickly and efficiently.

Business owners need that enhanced support to keep abreast of changing SBA rules and regulations. In 2018, for example, the SBA revised its Standard Operating Procedures (SOP). The new policies have spurred new activity, especially since qualifying businesses may now need only a 10-percent equity injection for startups or acquisitions — not 25. In some scenarios, there’s no down payment at all.

Q. What is a threat or challenge to SBA loan volume in Connecticut in the year ahead? What is an opportunity?

A. Let’s start with the opportunity. Now is a prime time to think about exporting, as the SBA will underwrite working capital loans with a 90-percent guarantee. Both the Obama and Trump administrations have encouraged this growth strategy. It’s a missed opportunity, since the overwhelming majority of sales occur outside the U.S.

Just one example: America’s share of the e-commerce market is projected to decrease to 16.9 percent of the total global e-retail market in 2020.

The biggest challenge is lack of knowledge. Often, business owners don’t realize that they don’t have to do the exporting themselves to qualify for the SBA export program. If you make a component for a product sold overseas — the clicker for a ball-point pen, for example — you’re eligible. So there’s a world of untapped potential.