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Saturday, May 21, 2022

SBA Loans Debt of Choice During Pandemic

Small businesses have found opportunities during the pandemic, creating a need for capital that SBA lenders have worked to fill.Catherine Jooyan, specialty lending sales manager and senior vice president at U.S. Bank, said SBA lending always had staying power, and that wisdom is especially true during a recession.“It’s the loan when credit isn’t available elsewhere,” added Jooyan.

U.S. Bank’s main Valley office is in Glendale.In the Valley, Jooyan sees growth in regular SBA lending. Businesses have been moving out of downtown L.A., she said, to buy buildings in places such as Burbank and Glendale, using SBA funding for the purchase.“Everyone has been impacted by the pandemic, whether that’s in a positive way or negative way,” explained Jooyan. “Businesses that we thought maybe weren’t going to fare very well actually did better than expected. … We’re seeing a lot of opportunity for small businesses and that’s why we’re seeing the spike (in lending).”That opportunity is due in part to an acceleration in existing trends, like moving out of the downtown area and the baby boomer generation selling their businesses, Jooyan told the Business Journal.“Business acquisition demand has been really big over the past couple years with the baby boomers getting into the retirement age. They’ll sell their businesses or they’ll have their partners buy them out and I think (the pandemic) has just expedited this,” she added.Another SBA lender, New York-based Newtek Business Services Corp., which services its loans in the Valley region from its office in Irvine, sees California as a risk factor, with government shutdowns closing small businesses in a variety of industries.“It makes it very difficult to provide financing to the local businesses,” said Barry Sloane, chief executive of Newtek. “We have put money out in California, we will continue to put money out in California, but we also do so with an air of caution since the business itself can be closed at any time if they’re not viewed as essential.”When considering a loan application, Sloane questions whether the business can survive a shutdown.

“Those are not estimated concerns in other states,” he said. “It factors into the underwriting.” The Business Journal did not publish its annual list of SBA Lenders in the Valley region this year because the federal government did not release data on lending due to the pandemic. The lenders interviewed for this story work at financial institutions that appeared on past lists with loan portfolios in the region.504 lendingMoney to purchase commercial real estate, fixed assets or refinance commercial property are called 504 loans in SBA jargon. This type of lending is in contrast to 7(a) loans for working capital and inventory.For the commercial real estate market in L.A. and the San Fernando Valley area, Jooyan said, the pandemic has “opened that up a little bit” for businesses that want to buy.“People that have been looking for buildings over time have now finally gotten the opportunity to buy that building, and with rates as low as they are right now, our bank has done very well in the business acquisition market and commercial real estate market. That’s where we’ve been seeing our uptick,” she said.“We have seen an overall growth in the demand for the 504 product, primarily because our interest rates have been at an all-time low compared to the 7(a) program, where it’s a variable rate. Some of the major banks are fixing their rate but they’re not quite as low as we are,” explained Dean Aloe, senior commercial lender for CDC Small Business Finance in Pasadena. “We’re at 2.55 percent, fixed for 25 years. Most major banks that provide 7(a) financing, they’re probably in the 3 to 3.25 percent range.”Businesses aren’t hesitating to take on debt, Aloe said. The senior lender this year closed a $9 million deal for a manufacturer in Valencia, helped a CPA firm purchase a building in Glendale for $6 million and closed on a surgical outpatient center for $10.6 million, also in Glendale.Industrial activityThat “uptick” Jooyan mentioned is specific to certain industries, mostly in the manufacturing sector.Sloane also sees an industrial skew to lending.“Obviously, there are certain industries that are doing better than others. Retail, restaurant and hospitality are less active in business acquisitions, for example. Manufacturing, industrial, has actually been more active in those categories.”Newtek, which is publicly traded, has forecasted that it will fund about $135 million in 7(a) loans during the fourth financial quarter, Sloane said.

Aloe added professional services to the list of industries looking for capital, specifically 504 loans. “I’ve got lawyers, doctors, dentists, those in the professional area that haven’t seen any negative side effects due to COVID. They’re the ones that are really looking for buildings,” he said.

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