In year of PPP, big banks tap brakes on SBA lending

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The pandemic and the federal government’s response have led to contrasting outcomes among the biggest participants in the Small Business Administration’s 7(a) loan-guarantee program.

Many of the nation’s most prominent SBA lenders experienced lower volume in fiscal 2020 from a year earlier as a slower economy, tied to shutdown orders and social distancing, cut into demand.

The $525 billion Paycheck Protection Program, launched in April to provide emergency loans to small businesses, also diverted lenders’ attention and resources away from the SBA’s traditional programs.

“Something had to give,” said Bob Coleman, editor of the Coleman Report. “PPP went from an idea to reality in three weeks. The lenders didn’t have time to add staff or ramp up.”

JPMorgan Chase's 7(a) volume fell by 54% to $218.9 million, and at BBVA in Houston it fell 46% to $147.1 million. Wells Fargo in San Francisco had a 31% decline to $544 million, and volume at Huntington Bancshares in Columbus, Ohio, fell 23% to $493 million.

While those lenders had lower volume, activity spiked at Live Oak Bancshares in Wilmington, N.C., Byline Bancorp in Chicago and Fulton Financial in Lancaster, Pa., largely because they targeted businesses that were relatively shielded from the pandemic or they courted larger clients.

Overall, 7(a) volume fell 3% to $22.6 billion as lenders focused on PPP.

JPMorgan Chase in New York was the nation’s most prolific PPP lender, with $29.3 billion of loans. TD Bank, Huntington, M&T, Wells and BBVA ranked among the 25 busiest PPP participants.

“This was an unprecedented year with the ongoing health crisis, and our efforts in small-business lending, while different in 2020, were still extremely helpful for our clients,” said Greg Clarkson, BBVA’s SBA division manager. “We have continuously punched above our own weight in SBA 7(a) lending in recent years, and in 2021 we will continue to strive for that usual success.”

"The turbulent economic environment associated with COVID-19" caused the decline in 7(a) lending at TD Bank, said Tom Pretty, the bank's head of SBA lending.

“The economic impact of the pandemic caused many businesses to focus on keeping their doors open rather than strategic growth priorities,” Pretty said. “As the economy recovers and industries continue to rebound, we expect SBA lending activities to begin to return to their regular volume in 2021 and beyond.”

Calls to JPMorgan Chase, Huntington, M&T and Wells were not immediately returned.

Still, some banks made more 7(a) loans while also participating in the PPP.

At Live Oak, the nation’s biggest SBA lender, 7(a) volume rose 10% to $1.5 billion. It also had more than $1.7 billion in PPP loans approved.

Live Oak lent about $430 million in the third quarter to its “least impacted verticals,” Huntley Garriott, president of Live Oak Bank, said during a recent conference call to discuss quarterly results.

“We've seen some pullback in the market from competitors and we’re getting some really good looks at some much stronger credits,” Garriott said. “We’re being extraordinarily thoughtful about the types of deals we’re willing to finance in this market.”

A fifth of Live Oak’s third-quarter originations involved self-storage facilities, solar energy, investment advisers and bioenergy.

Live Oak also sought out bigger borrowers, Chairman and CEO Chip Mahan said.

“We have a chance to move up market,” Mahan said. “It is true in some verticals that the Darwinian theory prevails, that the strong will survive, which will provide opportunities to the larger folks in our verticals.”

Byline had a 20.5% increase in 7(a) volume, to $633 million, while Fulton had a 37% spike, to $75.2 million.

Executives at Byline noted during the company’s quarterly call that activity received a boost at the end of the fiscal year because of an SBA pledge to cover six months of principal, interest and fees for 7(a) loans that were on the books by Sept. 27.

“The product became very attractive for borrowers” because of that commitment, said Alberto Paracchini, Byline’s president and CEO. “I would say that, if you strip out some of that extraordinary effect, demand was good.”

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