Nothing small about it

Executive Summary
Industry. Banking Trend. Banks build relationships with clients of SBA loans. Key. SBA loans are growing in popularity.

David and Laura Parraga got used to rejection when they applied for a bank loan in 2011 to open a gymnastics training facility in east Manatee County.

Multiple banks turned down the couple. They ultimately put $130,000 in savings into the venture. And when the school grew quickly and they needed an expansion loan, the Parragas found it in a non-conventional source: a U.S. Small Business Administration Loan.

The SBA doesn't make loans, but it guarantees loans made by qualified banks. The federal agency does that through a variety of programs, including the 7(a) loan program, the primary method for connecting existing small businesses to capital. The loans, around since 1953, were once a place at the bottom of the options pile, where banks didn't want to get involved because of the hassle.

“It used to be for folks who couldn't get conventional credit,” says Steve Vito, SunTrust regional president for commercial banking. “That's not the case at all anymore.”
In the Parragas' case, for instance, they worked with the Sarasota office of Regions Bank to secure the SBA loan. The funds will go toward the construction of a new building, a $1.8 million project.

Stories like that are becoming more common, on the Gulf Coast and statewide. In Florida, for example, SBA loan values increased from $685 million in fiscal 2013 to $693 million in fiscal 2014. Several counties on the Gulf Coast, from Pasco to Collier, reported increases in SBA loans, data show. Gulf Coast-based banks that are statewide leaders in SBA loans, in dollar volume, include USAmeriBank, C1 Bank and HomeBanc.

'A better mousetrap'
SBA loans are complicated and paperwork-heavy — this is a federal program, after all. But on the flip side most SBA loans require less collateral and down payment than a traditional loan. That makes the loans a viable option for young businesses.

For banks, SBA loans can be a paradox. The loans are time-consuming and labor intensive, and can be less lucrative for banks due to the smaller size and amount of work. Yet several lenders are eager for more. That's primarily because an SBA loan provides a way for a banker to do two important and connected things: Not say no to a client and build a relationship for future business. So maybe an SBA loan one year leads to larger, conventional loan another year.

That turns proficiency in SBA lending into a competitive advantage.

That's the approach at Birmingham, Ala.-based Regions. The bank invested heavily in people and resources in 2013 to rekindle its SBA loan department. That included training and hiring SBA specialists to work with the commercial bankers. In Sarasota-Bradenton, Regions has since handled SBA loans on everything from a nail salon to a medical building to a restaurant, in addition to the Parragas' gymnastics facility.

“We can really differentiate ourselves around being efficient in the SBA process,” says Gerhard Toth, business banking sales manager for Regions in the Sarasota-Manatee market. “From A to Z we think we have a better mousetrap.”

Regions and Atlanta-based SunTrust are among the leaders statewide in SBA loans, according to government data. SunTrust, with $63.4 million in SBA loans in fiscal 2014, tops the state. The bank is on pace to best that figure this year, with $36.64 million in SBA loans through the first five months of fiscal 2015.

SunTrust started its push for SBA loans in 2008, Vito says. “We made a concentrated effort to get good in this space,” says Vito, whose territory covers Sarasota south through Lee County.

SunTrust, like Regions, will look at SBA options for virtually every business client. But the bank, says Vito, mostly handles SBA loans for businesses with $3 million or less in earnings after taxes. The bank plans even more growth in its SBA program, adds Vito, by targeting clients with less than $1 million in assets. Regardless of size, a large chunk of SunTrust's SBA loans are for businesses that want to expand.

“We don't seek to sell SBA,” Vito says. “What we try to do is provide a client with as much information as possible.”

Regions is newer to the SBA party, but Toth and the staff want to rise in the rankings quickly. The bank is getting there: It went from three SBA loans worth $1.5 million in fiscal 2013 to 32 loans worth $25.62 million in fiscal 2014.

A rise in rankings isn't only for bragging rights. Welta Rice, an SBA specialist at Regions who coordinates the loans with the lender's commercial bankers, says the rankings are good for business, too. “It's important to be ranked,” says Rice. “I got an email from a potential client once who said he didn't want to work with us because we weren't ranked.”

A Sunny Outlook
SunTrust Banks is a leader in Florida for SBA loans, with more than $150 million on the books in the state since October 2012.

The bank has concentrated on SBA loans since 2008, says Steve Vito, SunTrust regional president for commercial banking. The loans take more time, in most cases, but for several banks, including SunTrust, SBA loans are part of a long-range strategy to do more for customers. “The SBA products are tricky and complex,” Vito says. “We are always looking to get better at our craft.”

Recent examples of SBA loans made through SunTrust Bank on the Gulf Coast include:

A multigenerational business on a downward spiral after the next generation wasn't interested in running the company. Revenues declined significantly, employees were let go and the firm was on verge of going out of business.

Then the national marketing manager offered to buy the business. SunTrust financed the buyout and purchase of new equipment through an SBA loan;

A firm that specializes in equipment that received a large contract and needed capital to purchase a larger facility for integration and assembly. SunTrust provided an SBA loan to the firm to purchase an air-conditioned warehouse for expansion.

A company that faced double-digit interest rates on a loan from another bank it had used to purchase a building. SunTrust refinanced existing notes with low interest, which cut the debt almost in half. A SunTrust SBA loan also funded technology upgrades, new equipment purchases and working capital to hire more employees.