Non-banks are jumping at a rare chance to get SBA 7(a) loans

A fintech community development financial institution that has been active in the Small Business Administration’s Paycheck Protection and Community Advantage programs has been granted a license to participate in the $35 billion flagship 7(a) loan guarantee program of the agency.

Only 14 non-custodial lenders are allowed to participate in 7(a). By securing one of the limited number of licenses, Lendistry became the first African American-led small business lending company. The 7(a) program is SBA’s oldest and largest. It offers loan guarantees of up to 85% on loans up to $5 million.

Los Angeles-based Lendistry, which was founded in 2015 and claims to have helped nearly 600,000 small businesses receive loans totaling $8.5 billion, has acquired its license from Hana Financial, which has discontinued SBA loans in 2018, sell your business to Patriot National Bancorp, based in Stamford, Conn., in an $83 million deal.

While Lendistry provided $4.7 billion in Paycheck Protection loans in 2021, after PPP exhausted its funding power in May, the lender’s only connection to the 7(a) program came through Community Advantage, a 7(a) pilot program whose loan limit — through March 30 — was $250,000. The regular 7(a) cap, on the other hand, is $5 million. The higher cap will allow Lendistry to meet the credit needs of underserved small businesses that have outgrown micro-loans and Community Advantage, Lendistry CEO Everett Sands said in an interview.

“There’s still a gap” to bridge between microlenders and CDFIs that serve small start-ups and conventional 7(a) lenders that target mature, successful businesses, Sands said. “Some people need $400,000, they need $500,000… We want to help build that roadmap to success for small business owners. »

The SBA launched Community Advantage in 2011 to provide better access to capital for underserved small businesses. Lendistry has been an active participant for much of its seven-year existence. Last month, the SBA announced a list of changes designed to drive community benefit participation, including ending a four-year moratorium on new lenders, increasing the maximum loan size by $100,000, and extending the life of the pilot program until September 2024.

“There is still a gap” to be bridged between community development financial institutions and conventional 7(a) lenders, said Everett Sands, CEO of Lendistry.

Evan Chan

Sands, who had called for an extension of the program and a higher loan cap during testimony before the House Small Business and Entrepreneurship Committee in May 2021, endorsed the SBA’s actions. “I’m very supportive of these changes and was very happy to see them,” he said.

Ironically, Lendistry will not be able to take advantage of the new rules. Although Lendistry “would love to be in both programs,” Sand said, SBA regulations don’t allow concurrent participation.

Now, Sands said he also hopes Lendistry can increase regular 7(a) program loans to women, minorities and veterans. For nearly seven months of the federal government’s 2022 fiscal year, companies where women controlled a majority stake received 15% of the 7(a) program’s $12.3 billion loan volume. Black-owned businesses received 4%; veterans received 3%. “I would love to see all of those percentages increase significantly,” Sands said.

Lendistry’s plan to build a volume of business large enough to meet Sands’ goals involves developing relationships with CDFIs and other mission-driven organizations that can provide a steady stream of referrals. “There are more than 1,000 CDFIs, thousands of chambers of commerce [and] economic development companies – that’s our target market in terms of partners,” Sands said.

In addition, Lendistry also plans to work with banks and credit unions that are not active 7(a) lenders themselves.

A community bank, the $643 million asset, owned by African Americans, OneUnited Bank in Boston, has already reached an agreement to ensure the flow of transactions. Under a deal announced this month, OneUnited will refer customers seeking small business loans to Lendistry. For the bank, beyond the referral fees it will earn, the collaboration offers it an introduction to small business lending, which it does not currently offer.

“It puts our feet in the water, and it does it with an organization that we have worked with that has proven that they really understand the needs of our community, which is largely minority, largely black, largely small businesses that are mom-and-pop businesses that have felt left out of capital access markets,” OneUnited President Teri Williams said in an interview.

The Lendistry connection immediately struck a chord with OneUnited customers, who even surprised Williams with how quickly they adopted the new connection.

“Two days later I called Lendistry and asked if there were any applications,” Williams said. “They said, ‘We have already received 150 enquiries.’ We do surveys with our customers, and business loans were one of the top asks. We therefore knew that there was a need, a desire, but we were really surprised by these comments. »

Williams added that she sees OneUnited’s ties with Lendistry as a long-term commitment. Ultimately, she expects this to lead to an increased presence in commercial and industrial lending. “We believe this partnership will grow enough and be deep enough that we can expand, eventually, into other types of commercial products.”

William Michael Cunningham, CEO of Creative Investment Research in Washington, DC, and an authority on the African-American banking industry, called Lendistry’s partnership with OneUnited, which is primarily a multi-family lender, a smart move on the bank’s part. “It frees them from the regulatory burden and costs associated with SBA lending, and it dulls any criticism that they don’t make enough loans” to individuals and small businesses, Cunningham said.

The SBA has capped the number of noncustodial lenders allowed to participate in the 7(a) program at 14 since January 1982. That cap remains in place, but in August, Sen. Tim Scott, R.S.C., and Sen. John Hickenlooper , D-Colo., introduced legislation that would end the moratorium on non-bank lenders and open up 7(a) to fintech lenders. To date, their Expanding Access to Affordable Credit for Small Businesses Act has failed to make it past the Senate Committee on Small Business and Entrepreneurship.

It is likely that at least one more SBLC license will be released in the coming months. Newtek Business Services, the nation’s second-largest 7(a) lender by dollar volume, announced plans to acquire a small New York-based bank last year and seeks to convert its operation from an SBLC to a bank holding company.

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