Live Oak Bancshares is used to finding opportunities, but the Wilmington, N.C., company’s latest expansion came about after it was contacted by two experienced lenders.

The $2.2 billion-asset company has hired Lisa Forrest and Heather Endresen, who recently left Banc of California, to create a group to finance clients’ mergers and acquisitions. The decision, which came months after the bankers approached Live Oak with a pitch to form the business, allowed Live Oak to formalize a service it was already offering on a case-by-case basis.

“We do a lot of acquisition funding in our other verticals, so this seems like a good fit and in fact, has ended up being that,” said Kay Anderson, Live Oak’s director of emerging markets.

The company declined to provide any projections for loan and revenue growth, though it expects the business to provide increased opportunities over the next decade, especially as aging small-business owners look to retire. The business will focus on companies with EBIDTA of $500,000 to $2 million.

Live Oak, the nation’s second-largest Small Business Administration lender, has been adding key personnel and business lines in the past 18 months, including utility-scale solar loans and online lending. It recently hired Scott Custer, former CEO of Yadkin Financial, as its bank president, and announced a digital banking joint venture with First Data.

The company, which usually adds two or three new businesses annually, is on pace to do more than that this year, said Aaron James Deer, an analyst at Sandler O’Neill.

“These continued additions of new verticals are very supportive of their above-average growth,” Deer said.

Live Oak isn’t the only community bank to offer M&A financing. For instance, the $106 million-asset Titan Bank in Mineral Wells, Texas, also works with clients on business acquisition loans.

The company, however, plans to tie the service into its fast-growing SBA platform. Live Oak, which made more than $1.3 billion in SBA loans during the agency’s 2016 fiscal year, which ended Sept. 30, is on pace to top that total by about 9% this year.

Clients can qualify for loans of up to $5 million. That threshold that kicked in after the 2010 passage of the Jobs Act; previously the limit was $2 million.

“We were looking for the best bank to be at to grow,” Endresen said. “We knew the M&A approach was a good one.”

The plan is to tap the bankers’ existing ties to investment bankers and private equity firms. Endresen and Forrest developed those relationships by attending conferences and trade shows that attracted M&A advisers, paying close attention to people who orchestrated smaller deals.

“We had to learn who those folks were,” Endresen said, describing it as “a network within a network.”

“These are networks that traditionally haven’t understood SBA,” Forrest said.

The arrangement allows Forrest and Endresen — who will remain on the West Coast — to work together at a third bank. In fact, Endresen hired Forrest when she worked at Union Bank in California. They eventually ended up at Banc of California.

“We’ve spent the last seven years kind of honing our craft,” Forrest said.

Given requirements surrounding making SBA loans, having specialists familiar with M&A could prove helpful.

There are risks that come with making SBA loans, said Brian Rogers, a lawyer at Blue Maven Law in St. Louis.

The agency can suspend its guarantee if the origination isn’t handled correctly, Rogers said. There are rules tied to M&A loans, including a requirement that a seller must leave the company. Also, earn-outs aren’t allowed.

The behind-the-scenes work “can be a real shock to people” who are unfamiliar with SBA loans, Rogers said.

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Allison Prang

Allison Prang

Allison Prang is a reporter for American Banker, where she writes about community banks.