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Thursday, Mar 28, 2024
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Banker Considers SBA Changes ‘Stupidest Thing in the World’

In a well-intended effort to extend loans to small-business borrowers who previously had a tougher time getting them, the U.S. Small Business Administration may be setting itself up for pain down the road.

That is the feeling among a few local bankers who make SBA loans. They view the agency’s latest changes to underwriting on micro loans, those under $350,000, as dumb.

“They’re stopping the cash-flow analysis of a business and replacing it with a credit-score model,” said one local banker who asked his name not be printed. He said the SBA analyzed the loans made to small businesses and found those owned by minorities and women weren’t getting approved as frequently as other groups were, and so it decided to loosen the requirements for approval.

But the local banker believes that by reducing underwriting requirements, more of those loans will likely default in the future.

“It’s the stupidest thing in the world,” he said.

The SBA disagrees with his prediction, however.

Maria Hughes, lender relations officer for the SBA San Diego district, said the regulatory changes were done to reduce the costs to lenders of making micro loans. Many banks avoid making such loans because it costs about the same to make a loan for a few million dollars as it does to make one for a few hundred thousand.

Hughes said the underwriting analysis on a micro loan still includes a business’s cash flow, which is the primary source of repayment.

“Yes, they are trying to reach more minorities and women, but they want [the banks] to consider everything, not just one thing,” she said. The loan approval process is “not going to be as cut and dried as it was before.”

Bob Coleman, editor of the Coleman Report, a longtime analyst for SBA issues, said the bankers’ anxieties about the changes are unfounded.

The reality is that most of the micro loans will be $100,000 or less, and made to unsophisticated borrowers, who may not have the best financial records. If the changes de-emphasize cash flow, it’s really not a big deal, Coleman said.

“The banks still retain 25 percent interest in the loan, so it’s in their economic interest to make a good loan,” he said. “And these borrowers still have to possess a strong credit score and still have to show a profit on their tax returns.”

Kurt Chilcott, CEO of CDC Small Business Finance, a San Diego nonprofit that makes SBA-backed micro loans as well as 504 loans, said the changes won’t be implemented until the end of this year.

“At that time we’ll be in a better position to evaluate the new process and determine if we need to do additional analysis,” Chilcott said. “In the meantime, we’re hopeful these policy changes create new traction for small businesses seeking capital, particularly those owned by minorities and located in low-moderate-income neighborhoods.”

• • •

Vibra lures rival SBA bankers: Vibra Bank recently hired two new people for its SBA department: Brian McClendon as senior vice president and an unnamed underwriting banker. Both came from San Diego Private Bank. Vibra CEO Frank Mercardante said a rumor that he was taking all of SDPB’s SBA team was totally untrue.

Maria Kunac, CEO of SDPB, confirmed that Vibra hired both bankers from her division, but she said that those positions “have been pretty much filled, and we continue to look for good SBA people. … We’re committed to the product.” The SBA unit headed by Mike Valenti now has five staffers.

Mercardante, who was hired last year to replace Scott Parker, said he’s got six SBA department employees now, the same number as when he came on board. He said he wants to increase all the bank’s lending lines, not just SBA lending.

In other SDPB news, it’s moving its downtown location from 1370 India St. to 550 W. C St. The new office is bigger and has lots more parking and an interior entrance, Kunac said.

• • •

Chase and SDSU partner on student recruitment: JPMorgan Chase & Co. awarded San Diego State University a $132,000 grant to expand the university’s recruitment and retention services and programs for U.S. military veterans seeking a college education.

The grant, part of an overall $1 million made to four universities, including two in Florida and one in Texas, to fund two positions: an assistant military liaison officer to help implement an outreach and retention program, as well as leadership scholar programs; and an assistant veterans coordinator to develop a peer mentorship program and help vets assimilate into student life, the banking company said.

The coordinator will also help process federal and state VA benefits claims, Chase said.

As part of ceremonies held June 27 at the USS Midway Museum involved with accepting the grant, Chase also donated a refurbished house to a wounded veteran, Marine Cpl. Joshua Lopez, who was awarded the Purple Heart for his injuries sustained in Afghanistan in 2012.

Chase donated the mortgage-free house in San Marcos to Building Homes for Heroes, a nonprofit that identified Lopez as a worthy recipient.

Send news about local financial institutions to Mike Allen via email at mallen@sdbj.com. He can be reached at 858-277-6359.

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