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Mixed Market for SBA Lenders in Pandemic

Small Business Administration loans provided crucial support for companies in 2020 and 2021, years when SBA lending was impacted by economic unpredictability and government aid programs. 

CDC Small Business Finance is a small business lender that ranks No. 2 on the Business Journal’s list of SBA 504 Lenders. For the fiscal year ended Sept. 30, 2021, the lender approved 401 loans for $440 million. By comparison, the previous fiscal year saw the lender approve 283 loans for $292 million.  

CDC’s Senior Vice President Armen Madatyan, who oversees 504 and commercial real estate loans, said that when compared to years past, the amount of loans approved in 2020 and 2021 was a big jump. 

504 loans provide long-term, fixed-rate financing of up to $5 million for the purchase of major fixed assets such as real estate that focus on business growth and job creation.   

“It wasn’t just us that were extremely busy; the SBA was very busy as well, which led to at times, very long delays and approval times which (impacted) pretty much all of our real estate deals,” Madatyan said. “(That) had a negative impact on people looking to get approved and closed on time.”  

Average turnaround times for loan approvals are around seven business days, according to Madatyan. However, some loans were pushed to 30 calendar days before approval. Those delays did not take into account the time it took CDC to conduct its work on loan applications and submit them to the SBA.  

“The fact that SBA’s turnaround time went from an average of one week to four, sometimes five weeks, really put a strain on the system,” Madatyan said. “That was pretty unprecedented.”  

In addition to delays, Madatyan said more time than usual went into communicating with clients and extension negotiations.  

 

‘Steady’ 7(a) market 

According to the SBA, for fiscal year 2020, the 504 loan program issued more than 7,000 loans nationally worth more than $5.8 billion. Conversely, for the same fiscal year, the 7(a) loan program made around 42,000 loans that totaled $22.5 billion. 7(a) loan are for conventional working capital and business support needs. 

U.S. Bank is one of the nation’s most popular lenders when it comes to 7(a) loans and ranks No. 1 on the Business Journal’s list.   

Catherine Jooyan, the bank’s senior vice president and regional sales manager, said that for 7(a) lending in fiscal year 2021, the bank lent 1,692 loans for $470 million. For 2020, the bank lent 2,676 loans for $312 million.  

U.S. Bank has not seen dramatic rises in volume and has been “pretty steady” in 2021, according to Jooyan. At the same time, she added, the bank has doubled its loan volume in 2021 within Southern California and more specifically, the Los Angeles area.  

The second federal stimulus package earlier this year made it so that SBA guarantee fees were waived for 7(a) loans through Sept. 30, 2021, among other things.   

“(The stimulus) gave banks a larger guarantee from the SBA and no fee to the borrower, and then also paid three months of principal and interest payments for the borrower,” Jooyan said. “We saw a pretty big gain in Southern California because of the stimulus. It kind of pushed more people to get loans.”  

According to Jooyan, the influx of Payroll Protection Program lending compounded with the momentum from the stimulus allowed borrowers to have extra cash that they could put down on purchases for assets such as real estate.  

Other banks on the Business Journal’s list involved in 7(a) lending are Wells Fargo

 & Co. (No. 2) and JPMorgan Chase Bank (No. 5).

In an email to the Business Journal, Elizabeth Seymour, executive director of external communications, consumer and business banking at JPMorgan Chase, wrote that “given the tremendous demand for PPP loans and other forms of relief for businesses who were struggling from the pandemic, coupled with ongoing economic uncertainty, demand for traditional business loans, including 7(a) loans, declined over the last two years.”  

In 2020, SBA 7(a) loans accounted for only 7 percent of overall lending at JPMorgan Chase compared to 11 percent in 2019.  

Wells Fargo, which approved 1,843 SBA loans for $601 million nationally in federal fiscal year 2021, believes small business loan volume will not slow down anytime soon.  

“We continue to see small businesses with a need for capital – and we’re looking to grow our SBA lending to meet those needs,” Chris Ledesma of Wells Fargo SBA Lending, wrote in an email. “SBA had a record amount of loans approved last year – we expect that to continue.” 

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