Main Delays in SBA-Backed Loans Are Slowing the Restoration

The Covid-19 pandemic hasn’t been unkind for Stephen Schober’s 35-year-old metal utility company. Several employees at Metal Supermarkets, with 98 franchise locations in the US, Canada and the UK, got sick but recovered. and the business itself was deemed essential so that it never had to close its doors.

“We’re expanding,” said Schober, whose Mississauga, Ontario-based company employs more than 500 people across the system and had worldwide sales of $ 117 million in 2020, up from $ 110 million in 2019. ” We’re pretty attractive now. A franchise opportunity because we’re an essential business that is increasing sales and is profitable. “

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But Schober has a problem: Six of his newest American franchisees are struggling to get funding. Lenders are now calling for stricter due diligence on loans backed by the U.S. Small Business Administration – even though Metal Supermarkets’ business model has been identified as eligible under the rules of SBA partners and is listed on the agency’s franchise directory.

Among other things, lenders are now asking more questions, and some want higher down payments, more liquidity, and more foreign income. They also require new companies to hold off a site – even if the owner is using her own money – until all SBA documents are signed and sealed. “We now have franchisees who have signed the lease and either pay the rent or blow the free rental period. They can only sit there for 30 to 60 days while the bank prepares the documents,” says Schober, who adds that Documentation itself also takes longer. “These are different banks in different states,” he says. “It is really going to be a challenge … I worry that we are slowing down business creation, which will be very important to recovery.”

While the SBA is well known for the Paycheck Protection Program, which now offers $ 284.5 billion in loan offerings, the agency has a number of longstanding programs designed to encourage lenders to draw up loans. In the past few months, business owners across the spectrum have been reporting signs of credit crunch within these programs – even as demand increases.

“We’re seeing some deals that used to take four to six weeks now take four to six months,” said Evan Goldman, partner and chairman of the franchise and hospitality group at AY Strauss, a law firm in Roseland, New Jersey. “Banks and lenders in general – SBAs or not – are just very cautious about lending right now,” he says.

The pandemic continues to set the pace of lending, says David Nilssen, CEO of Guidant Financial, a Bellevue, Washington-based financial advisory firm that has also reported lending delays to some of its 8,000 small business customers across the country. The US continues to log more than 100,000 cases of coronavirus per day. “That number has to drop dramatically so that the banks can be confident that they can make these loans,” says Nilssen.

However, there is cause for optimism. The recently passed US $ 900 billion stimulus package sweetened the SBA’s key programs – including the flagship loan program 7 (a) for working capital loans and the loan program 504 for financing commercial real estate loans. In addition to waiving fees for new loans granted after February 1 through the end of September, businesses will receive a six-month grace period for payment of up to $ 9,000 per month while the funding is ongoing. The SBA increased their guarantee from 75 percent to 90 percent of the capital, which gave the banks a greater incentive to write the loans.

And lenders are increasingly using technology to accelerate loan adoption. That’s the case at Customers Bank, says Michele Vervlied, senior vice president and director of SBA Operations at the Wyomissing, Pennsylvania-based bank. Unlike the first and second rounds of PPP, in which the SBA approved $ 525 billion in loans to 5.2 million companies, many lenders – including customers – are now automating their processes. That should give them more time to process traditional SBA loans, says Vervlied. “We’re trying to speed up the funding of smaller businesses with smaller amounts of credit so we can get funding quickly.”

She adds that the bank is also changing its terms to take into account that 2020 is such an unusual and miserable year. “We’re focusing more on borrowers’ business plans and projections and how they’ll get out of the pandemic,” says Vervlied. “It’s a new world in underwriting 7 (a).”

For its part, the SBA says it has been working overtime to help small businesses for months. “The US Small Business Administration is offering real lifelines to small businesses struggling with the Covid-19 pandemic under the Paycheck Protection Program and traditional funding programs,” the agency said in an email statement. “As the administration ensures an effective and equitable reach of these programs, the SBA will continue to process and support critical loans that help millions of businesses keep their doors open, keep employees on payroll and connected to their health benefits stand.”

In reporting FY 2020 results in late October, the SBA announced that it had approximately 42,000 7 (a) loans totaling $ 22.55 billion and more than 7,000 504 loans totaling more than 5.8 Billion USD supported. The number and total value of 7 (a) loans fell well below the agency’s projections, while 504 loans exceeded them on both accounts. The SBA declined to provide estimates of the number of program loans it plans to take out in 2021.

In January, the SBA reported that it had made more than $ 7.1 billion in payments since April on 1.8 million loans to existing program 7 (a), 504 and Microloan borrowers. While the SBA’s debt relief agency was first approved under the Cares Act passed last March, it was expanded under the latest debt relief act.

The increased capacity is good news, but demand is also increasing, which can mess up the work. Business start-ups hit a record level in the third quarter of 2020 with 1.5 million new business registrations, according to the Ministry of Commerce, before declining to a seasonally adjusted 1.1 million in the fourth quarter.

Loan applications have also increased, says Nilssen of Guidant Financial. Between December last year and January, his company’s loan application volume rose 71 percent. In contrast, he says, “Last year we helped raise $ 262 million for small businesses across a range of businesses [small-business] Loan programs. That was around 30 percent less than in the previous year. “He notes that the statistics do not include the company’s role in helping customers access the PPP. The recent surge, he adds,” shows that there is a lot of pent-up demand for small businesses. ”

It makes perfect sense how lenders adjust to the needs of the business community in the meantime – and it’s about the economic recovery itself, says Ami Kassar, founder and CEO of MultiFunding, a small business loan advisor in Ambler, Pennsylvania. Companies that have stayed flat or have grown during this difficult time are likely to make most of the hiring at the beginning of the economic recovery. “And they are going to need money to produce a flood of new workers,” he says, noting that millions of Americans now on the unemployed list will be looking for work as the pandemic subsides.

“There are so many companies that are doing really well, but in order to keep growing, many of them need cash,” says Nilssen. If they don’t get it, some companies “could be in a position where they either need to slow their growth or find themselves in a major financial crisis”.

As vaccinations rise and the economy picks up pace, Nilssen expects lenders to adjust to recovery mode – and as a result, conditions for businesses could ease too. It did so after the Great Recession in 2009, when the passage of the Recovery Act approved similar changes to the SBA’s credit facilities and ushered in record-breaking small business lending. “In late 2009 and as we transitioned into 2010, we saw a significant shift in the number of people trying to open a business and the appetite of lenders to invest,” says Nilssen. “When I look at the dynamics today, I assume that something similar will happen towards the end of 2021 and through 2022.”

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