Lenders have lots of ideas for improvements at the Small Business Administration and high expectations for seeing some of them happen with Maria Contreras-Sweet at the helm. Here's what 15 experts in small-business banking say they'd put at the top of the to-do list for the new SBA administrator.
Chairman and CEO, Avenue Bank in Nashville, Tenn.
Assets: $942 million
It is time to review the SBA's standard operating procedures, or SOP. It's hundreds of pages, and we would recommend that a team of bankers work with the SBA to review, rewrite and reduce the number of pages of procedures.
The SBA also should consider increasing local office resources so they can have "banker/small business advisory boards" that can give the agency feedback. Networking is key to building any business and this type of forum would give the community more awareness of what is available from the SBA and the participating banks.
The approval process for a nonpreferred lender to become a preferred lender needs to be more efficient. If someone with, say, 10 years of experience changes banks and wants to start a new SBA program, that experience should count. Our experience suggests the size of a bank's current SBA portfolio carries more weight.
One final thought: programs such as the Economic Recovery Act included a government subsidy to pay the upfront SBA fees. Consideration should be given in the future to carving out a specific dollar amount of funds for smaller banks to use over an extended time period. The larger banks do substantially more volume quicker and, therefore, use the resources provided before many smaller bank clients can be served.
Paul G. Brown
Chief Lending and Client Services Officer, Howard Bank, Ellicott City, Md.
Assets: $508 million
Streamlining of SBA loans is a process they started. However, there is still work to be done. The SBA also needs to form better strategic partnerships with lenders on both the front end and back end of SBA loans. When loans go to liquidation, it is like you are working against the SBA in getting resolution. This antagonistic approach results in many lenders not wanting to work with the SBA. This includes the SBA being more responsive in getting modifications approved for current loans as well as for loans in liquidation.
Headway also needs to be made as it relates to access to lines of credit for small businesses.
Director, Women's Business Center of North Carolina, a nonprofit based in Durham, N.C., that assists female entrepreneurs
The SBA's support and advocacy of programs such as Boots to Business, an online course on the basics of starting a business for former and current members of the military, is great. But the program could be more effective if the two-day introductory workshop were streamlined and taught in a day or a four-hour segment. This would allow the program to reach more service people who are transitioning to civilian life, and the information would be more concise.
CEO of Mercantile Capital Corp., Orlando, Fla., a nonbank commercial real estate lender specializing in SBA 504 loans
The thing I'd like to see the administrator do is continue to push to enable 504s to do refinances, to bring that program back. There's been some movement in Congress, but I think she should go on record and really do some arm-twisting if that's the right word to get Congress to act on this. There are a tremendous amount of commercial mortgages that will be ballooning from 2015 through 2017, and the 504 would help to a lot of those small businesses to refinance those ballooning mortgages.
A program allowing refinances passed as part of the Small Business Jobs Act of 2010. It was only in place until September 2012, because it was a 24-month program. The agency took 11 to 13 months to promulgate all of the regulations, so it really wasn't fully operational until those last 11 to 13 months. We tried really hard to get it extended. But because 2012 was a presidential election year, it was awfully hard to get that on the radar screen.
I also would love to see her voice support for and try to bring back the First Mortgage Loan Pooling program. Again, that was a program that was part of the Jobs Act and was extremely beneficial for the short run it had. It still would be tremendously helpful, particularly as it relates to the current banking regulations and restrictions on certain property types and whatnot. This is a program that would enable a lot of those types of projects to get financed.
These were budget-neutral programs, extremely well liked by the lending community and the entrepreneur community. Yet the agency took a long time to write all the rules for them and, by the time it did, the programs shortly thereafter ended and they just didn't get reinstated. It's quite a shame, to be honest.
Head of Business Banking, Union Bank, San Francisco
Assets: $107 billion
The agency should simplify processes and enhance transparency. We often hear from small-business owners that the loan process is too complex and lengthy. Simplifying the process and providing assistance every step of the way were also two common discussion items during a recent Union Bank roundtable for multicultural business and organization leaders.
Business owners are ready to invest in their businesses, and they want products and services tailored for them. Consumers also want and need to feel more confident about the lending process and the options available to them. We'd like to see additional, enhanced SBA educational programs for entrepreneurs. As always, transparency is the key with every program and process.
The new director must also encourage support in Congress.
The SBA must ensure that the agency is adequately funded and that loan solutions such as the 7(a) and 504 programs continue and are enriched. It is also critical to generate support for new and improved programs.
President and CEO, The Pineries Bank in Stevens Point, Wis.
Assets: $69.5 million
The SBA needs to improve the time it takes to file and get a claim resolved. The agency must also be more responsive to the lender's claims for help.
We had an SBA loan where the borrower stopped paying and I had to protect my collateral. So I decided to file a claim. I thought I had followed the rules, but no one told me I was doing things incorrectly until nine months afterward. I have so far gotten a partial $7,000 settlement from a $30,000 claim and assurances from the SBA that they will not deny my claims in the future.
The SBA should also make its programs less frustrating to work with, particularly with the application process.
Executive Vice President of Business Development for Celtic Bank, Salt Lake City
Assets: $286 million
Continue and accelerate the current initiative to automate SBA/lender interactions. The loan approval process will become much more efficient and the information collection much more accurate.
While the SBA has made a concerted effort to bring more and more banks into the preferred lender category, it should not do so without ensuring that lenders given this authority are competent and are strictly adhering to the rules and regulations of the program.
Chairman, President and CEO, Ridgestone Bank, Brookfield, Wis.
Assets: $385 million
Make sure the program has enough funding from Congress to continue the momentum that's been built. I think there's a chance we could hit the funding cap by the end of this fiscal year. But just the trajectory of the program tells you that, if we make it through this year without hitting the funding cap, next year could be more problematic.
Continue partnering with the lending community to keep making enhancements to the program, as the SBA has done in recent years. The SOP of the 7(a) program is a very thick book. Many times it's somewhat complicated to interpret. What they've been doing is trying to improve the clarity, so that there's more certainty in the brand promise of the government guarantee.
Keep hiring people who have an idea of what it's like to be involved with the lending community. Some really good people who are bankers have been brought in, including the new head of the SBA. That's very powerful, when you can, banker-to-SBA head, talk to them about what the issues are within the bank. There have been some good enhancements just as a result of the people understanding what the complexities are of trying to deliver the programs.
President and CEO, KeyWorth Bank, Duluth, Ga.
Assets: $381 million
The SBA should continue to evaluate ways to enhance the revolving line-of-credit product. As the economy grows, we feel this product will see more demand from growing businesses.
I'd also like to see a possible reduction in SBA fees. The SBA guarantee fee could potentially be reduced slightly to soften the borrower's cost in obtaining new SBA loans. New business startups will aid in the economic recovery.
The new director could also look to add a refinance product to the SBA 504 program. This is currently available for SBA 7(a) loans, and making it available for 504 loans would be beneficial for borrowers and banks.
Head of SBA Lending for TD Bank, Cherry Hill, N.J.
Assets: $237 billion
I'd like to see the SBA make innovation and automation a key priority. The agency has done a good job lately of implementing new programs such as the Small Loan Advantage program, and consolidating some of the forms required to complete an SBA application. However, I see an opportunity in the application process, under the current program rules.
A second priority would be to continue to work with the top lenders in the country and expand their access to agency leaders. Let's work in partnership to determine the best ways to get financing to the small businesses that so desperately need it to keep this country growing.
President and CEO, Valliance Bank, Oklahoma City, Okla.
Assets: $315 million
The SBA needs to communicate clearly with business lenders in community banks. This may be an issue of manpower, but I believe the SBA has become less responsive in recent years. When a lender attempts to communicate and seeks answers from the SBA, the process can take days and even weeks. The process is not a timely one to begin with and an unwillingness, or an inability, to be responsive just exacerbates an already cumbersome process.
Valliance Bank would benefit from a new refinance program on the SBA 504 Loan. SBA 504 is the program where community banks have a first mortgage at a loan-to-cost of 50%, the owner has 10% to 15% equity and a certified Community Development Company has a second mortgage behind the bank for the remaining 35% to 40%. The former refinance program expired in 2012 as part of the Small Business Jobs Act of 2010. Because we cannot do refinances, this hurts customers of the bank who want to take advantage of current low interest rates.
The new director also needs to continue to focus on simplification of the process, and progress that has been made on this front needs to continue. We need a website that is more user-friendly and processes and forms that are easily available. The elimination of fees on loans of $150,000 and under (with the Small Loan Advantage program) is a clear example of a step in the right direction.
President and CEO of First National Bank of Scotia in New York
Assets: $418 million
The fee waiver for loans of $150,000 or less is going to expire on Oct. 1 and it is critical we have that. Loans under $150,000 are the key to our economic activity and having more tools is going to do nothing but help our economy.
We need to streamline the process to make it simpler for lenders and borrowers. We are getting closer to the point that, if a loan is approved in June, it will be difficult to close by Oct. 1 because the process is slow.
I'm a huge advocate of the SBA and cannot be happier to see someone with small business and community banking experience leading the agency.
Manager of small-business lending at Local Initiatives Support Corp., a nonprofit community development finance organization, and president and CEO of its Chicago affiliate, New Markets Support Co.
ADMINISTRATOR CONTRERAS-SWEET is on the right track in her priorities for the SBA. In her recent comments to attendees at the National Association of Government Guaranteed Lenders conference in Florida, the administrator highlighted the issue that small, minority-owned firms are three times as likely to get turned down for a bank loan and that the SBA and its lenders need to work together to get capital into the communities that need it most.
Interim President of the National Association of Development Companies, and President and CEO
of CDC Small Business Finance in San Diego
Washington should double down on commitments to provide small businesses with access to the capital they need to grow.
The first step is to increase small loans and microlending, such as with the SBA's Community Advantage and Small Loan Advantage programs that offer working capital loans of up to $250,000. More support and visibility for these programs would fuel a surge in our economy, creating new jobs and opportunities in communities that need them most.
Second, Congress should pass a permanent reinstatement of the debt-refinancing program that was instituted by the Small Business Jobs Act of 2010. When the program was in place, it helped 2,700 businesses across America refinance their old, expensive commercial real estate debt, unlocking their own equity to invest in creating and retaining jobs. Small businesses saved as much as $20,000 a month on lower interest payments, allowing for expansion, additional hiring and the development of new products and services.
SBA Manager, Banner Bank, Walla Walla, Wash.
Assets: $4.5 billion
Allow less underwriting, the higher the credit score of the borrower. What I mean by that is, the SBA about a year or so ago instituted a new program whereby, with loans of $350,000 and under, we can push a button and get a credit score from the SBA. It's a proprietary program they have, and at present, if that score is 140 or greater, we can continue processing the loan with what we call "delegated authority." What one of our lenders suggested is, "How about tiering that?" So let's just say a score was 180 or above, the underwriting could be minimal; 160 to 180, there'd be robust underwriting; 140 to 150, even more robust underwriting, something along those lines. The reason I say that is because lenders have to do 15 pages of analysis on a small loan. Let's use tiers so that we have lenders not being quite so reluctant to write up a deal for a small dollar amount.
The guarantee percentages haven't changed in maybe 10 or 15 years. Right now the guarantee covers 85% with loans for $150,000 and under and 75% with loans over that amount. My suggestion is give an 85% guarantee on loans up to $350,000 and then 75% for the rest.
The SBA allows lenders to charge a little more in terms of the interest rate on loans of $50,000 and under. But you don't see a lot of loans under that dollar amount, unless they're SBA Express. What I would suggest is go back to the $350,000 threshold again and allow lenders to charge a little bit more for loans under that amount or for loans that have a lower credit score say, 140 to 160, because it's probably a riskier loan than one with a credit score of 200. That's optional. You could still choose to charge less. But give the option to charge another quarter point or half point, something a little more to compensate for that risk.
If you're trying to give the lender some incentive to make a smaller loan, making it easier and making it more profitable probably helps.
The SBA also should relax the affiliation rules. Right now we have to look at any owners of 20% or more of the company to see if they have a controlling interest in another business. The affiliation rules are very complicated. They're so complicated, you have to kill trees to figure it out. The SBA has proposed relaxing them, but that has been taken off the table for now. We'd like to see that put back on the table.