Windsor Advantage's Q&A Corner

SBA Notes of Interest

By Connor Mulvey, Windsor Advantage

Should we look at the SBA now that PPP is behind us?

SBA lending can effectively provide small businesses with better access to capital, and lenders are signing up to provide these programs at record levels. Many banks, credit unions, certified development companies, and community development financial institutions are adding SBA products to their offering. The National Association of Government Guaranteed Lenders hosts several SBA conferences each year, and in the last few years, these conferences have sold out.

The secondary market for investors looking for a relatively safe investment is still very robust. Lenders can sell the guaranteed portion of the loan for premiums that have been as high as 20%. It would be best not to entertain this specialized lending because it can change as it did in 2008. As a lender interested in providing small businesses with better access to capital with some of the risk mitigated, this is a program you should consider, and the time could not be better.

1. There are risks in SBA lending, and what should we consider?

Yes, barriers to entry make this jump a little uneasy for new lenders to enter this type of specialized lending. Some lenders reconsider due to the shortage of expert SBA staff, the ever-changing SBA Standard Operating Procedures, and the fear of losing the guaranty.

SBA lending has reached record levels, causing many lenders to pay more for SBA specialists than they did just a few years before. We see in any one market that 75% of the SBA lenders “dabble” in SBA lending, meaning approving 1-6 loans per year. SBA lending is not a sustainable course because it does require specialized staff in processing, closing, and servicing SBA loans.

There are alternatives, whereas lenders focus resources on business development and outsource the processing, closing, and servicing functions. There are approximately 6-10 “national lender service providers” such as Windsor Advantage in the market, along with many “mom & pop” providers servicing one or two lenders locally. It is virtually an unregulated part of the industry that is getting more and more attention as Congress pushes the SBA to be better stewards of the program. Those who have been in the industry and want to make sure this program is “done right” welcome the additional scrutiny, although hopefully not as cumbersome and restrictive as Dodd-Frank requirements. Vendor management is becoming more and more of a focus for all of us.

2. How can we leverage our current team to introduce SBA lending to our communities?

If you enjoy a solid C&I lending team or even a branch network with some experience in small business lending, you can organically grow your SBA portfolio. We encourage lenders first to develop an efficient process (or your loan officers will not buy into SBA lending), set realistic goals, and even provide incentives to start a good path to a successful SBA program.

It is an excellent time to look at SBA lending for your institution. There are sufficient support organizations that you can work with to stay out of hot water and develop internal and external controls to ensure the program is successful. Also, you can create a consistent delivery system to provide both internal buy-ins from your loan officers and external buy-in from your accountants, business brokers, and realtors whose only objective is to get to the closing table.

Windsor Advantage is the nation’s largest SBA Lender Service Provider and assists lenders nationwide in processing, closing, servicing and liquidations.

For more information, please contact Connor Mulvey, Vice President– Business Development Windsor Advantage, LLC, 444 N Wells St., Suite 201, Chicago, IL 60654 P: 312-585-6596 C: 708.408.1820