Several community banks are finding success in schooling potential customers on the ins and outs of SBA lending.
By William Atkinson
SBA lending can be complex, and leveraging this offering effectively requires knowledge on the part of both your bank and your customers. The key is to create formal initiatives to educate customers en masse, and then individually. That’s according to a number of community bankers finding success with SBA lending.
Walter McLaughlin is passionate about educating people on SBA lending. He’s the senior vice president and SBA manager for $11.7 billion-asset Banner Bank in Walla Walla, Wash., one of the 100 most active SBA 7(a) lenders by volume, according to the U.S. Small Business Administration. He’s taught countless people through blogs and the forums he’s held for nearly 30 years.
His community bank’s widespread educational efforts on SBA lending take a number of forms. One of McLaughlin’s most popular blog posts, “5 Tips When Considering an SBA Loan,” appears on Banner Bank’s website. The community bank includes a copy in business packets to provide during seminars and sends similar information to prospects and potential customers. Banner Bank also writes advertorials focused on SBA education that appear in local business journals. Finally, it takes advantage of social media, including YouTube, to get the word out on SBA lending. “I also conduct a number of professional education seminars for CPAs, after-hours events for clients and SBA education seminars for the general public,” McLaughlin says.
of small-business loans under $1 million are made by community banks
All this outreach isn’t solely focused on sales, McLaughlin says. Of course, since the bank does have such a reputation for SBA loan education, it reaps the benefits from customers and prospects. “The last thing I want is for a borrower to think that we are selling,” he notes.
Banner Bank goes beyond educating customers. It teaches its own personnel. “We want to push our SBA knowledge out into all of the communities we serve,” says McLaughlin, referring to Banner Bank’s more than 200 branches in Washington, Oregon, California and Idaho. “As a result, our SBA lenders, which we call SBA liaisons, are very well educated.”
Customers interested in SBA loans can deal with local expertise so they don’t have to contact McLaughlin’s office in Bothell for more information. “This approach has been very successful,” he says. “The reason is that customers and prospects would rather deal with our SBA liaisons in their own communities.”
When customers and prospects show interest in SBA loans, bank professionals “drill down” to individualized education, McLaughlin says. And this education can change over time based on business trends. The people attending McLaughlin’s seminars have shifted over time from entrepreneurs who were starting, or thinking about starting, a business to more seasoned business owners who are looking to take the next step.
In the future, Banner Bank might expand its current pilot program with new SBA lenders moving into key markets to generate traction. “In terms of SBA marketing in specific, our marketing group definitely wants to see more blog posts and more advertorials, plus a greater emphasis on social media and YouTube,” McLaughlin says.
The expertise of an SBA bank
Another community bank with a commitment to SBA lending is $1 billion-asset Seacoast Commerce Bank in San Diego, Calif., which actually identifies itself as an SBA bank.
Seacoast formed a separate SBA division in late 2009 and has funded almost 2,000 SBA 7(a) loans worth $1.71 billion through the end of 2018. Like Banner Bank, Seacoast is a member of the SBA’s 100 most active SBA 7(a) lenders by volume. In the third quarter of 2018, the community bank was the 14th largest SBA lender in the country, approving 297 loans worth $293 million. Seacoast’s focus is on small businesses that want to buy, construct or refinance commercial real estate to be used by their small business.
To educate customers and prospects about opportunities associated with SBA loans, Seacoast features a webpage devoted exclusively to SBA loans, which is supplemented with two pages that provide more in-depth information. To educate customers individually about SBA loan opportunities, the bank tailors its education to their specific concerns.
“The most common misconception that customers and prospects have about SBA loans is that it is a cumbersome process that takes a long time,” says David Bartram, SBA division manager, senior executive vice president and chief operating officer for Seacoast. “If a client works with a lender that doesn’t have strong SBA expertise, this is true.”
Seacoast, on the other hand, is able to approve requests within four days and fund within 30 days. It performs as much of the documentation as possible because it has the expertise to do so. “Our 78 SBA employees average 15-plus years of SBA experience, and we know the SBA Standard Operations Procedures better than most lenders,” Bartram says.
The bank extends its SBA education beyond its customers, prospects and staff to key people outside of the bank who might be in a position to provide loan referrals. “We have 23 SBA business-development officers who work directly with commercial real estate brokers and sales agents, with other banks that can’t assist their clients with SBA loans, and with other sources, such as loan brokers, attorneys and CPAs,” Bartram says. “We educate them so that they refer clients to us.”
Fostering customer growth
FNBC Bank, a $468 million-asset community bank in Ash Flat, Ark., takes a personalized approach to SBA education. “We spend a lot of time with customers on the front end to help them determine whether SBA loans are right for them,” says Mark Skelton, vice president and senior commercial lender for the bank’s FNBC Small Business division. “The goal is really to create a thought process with them. My job is not just to make loans, but to help customers. We don’t want them to ignore potential risks. The last thing we want to do is drown someone in a business that they shouldn’t be in.”
When Skelton sits down with an SBA candidate, he starts out by discussing the advantages and why they should consider SBA loans in certain circumstances. He sees opportunities for SBA loans in four areas.
First, they’re especially useful for startup customers. “A lot of commercial banks are leery of these, because they are unproven,” he says. “However, SBA loans allow us to mitigate a lot of the risk.”
Second, there are risks when someone wants to take over an existing business, and the SBA guarantee reduces a lot of the risk. Third, many potential customers have limited collateral, and the SBA guarantee mitigates much of the collateral risk.
Lastly, SBA loans have longer amortizations. For example, if a bank is financing intangibles, such as furniture, fixtures and equipment, or FF&E, most banks like to keep the loan to five or seven years. “An SBA guarantee will allow us to go out to 10 years, which means a lower payment and less of a debt burden to customers,” Skelton says.
Skelton educates customers and prospects about business resources that can help them succeed in qualifying for SBA loans in the first place. Recently, he recalls a customer who wanted to open a title company. Skelton referred the customer to a small business and technology business center, which is designed to help small-business owners with feasibility studies and more, free of charge. There, the customer got help with her business plan. “When she provided this package to me, there was a lot of good information for me to look at as far as projections,” Skelton says.
He finds the process of providing personalized SBA loan education personally rewarding.“It is very satisfying for me to help customers realize their dreams of starting their own businesses,” he says, “and to know that the education, information and advice that I provided helped them to do it in a safe way.”
Demystifying SBA lending
While many community banks emphasize their SBA loan acumen, others focus on other types of commercial loans, using SBA loans as backup. In so doing, they make it clear to customers and prospects that SBA loans aren’t the only option. One such bank is $160 million-asset Farmers & Merchants Bank in Miamisburg, Ohio.
Daniel Yoder, the bank’s vice president of commercial lending, makes it a point to address customer concerns about SBA loans so that they can select the loan option that’s best for them.
One concern he hears from customers is that SBA fees are often higher than conventional loans. As such, he often tries to help customers qualify for conventional loans first.
Another customer concern is that SBA rates are also higher than conventional loans. In this instance, Yoder might suggest that, if the customer can’t qualify for a traditional loan, they start out with an SBA loan and then refinance to a conventional loan down the road.
One misconception he hears is that the money for SBA loans comes from the government, and thus the bank has nothing to lose and can therefore “go easy” on borrowers during the loan approval process.
In response, he explains that the loan actually does come from the bank, that the bank would recover only a portion of its loss if the borrower defaulted, and that it is strict on SBA deals because of this risk.
In fact, according to Yoder, “We use the SBA program when a loan presents greater risk than conventional underwriting will accommodate.”
William Atkinson is a writer in Illinois.