SBA loan activity on upward trajectory in Michigan
Specialist says borrowers are feeling confident in cash flow, business opportunities; banks are raising loan maximums.
Huntington Bank is seeing a rising tide of confidence from borrowers interested in Small Business Administration loans.
According to data provided by the U.S. SBA’s Michigan District Office in Detroit, Huntington Bank again was the top SBA lender in Michigan during a 10-month period from Oct. 1, 2016, through July 31, 2017. During that time, the bank issued 921 loans worth $133.6 million, compared to 904 loans totaling $95.9 million during the same period last year.
Benjamin VanDerWeide is the SBA senior product specialist at Huntington. He said the SBA’s 7(a) loan program — the most common type of SBA financing — is increasingly workable for those who might not qualify for conventional loans.
“The reason buyers use SBA loans instead of conventional loans is we’re able to secure loans with uncollateralized debt,” VanDerWeide said, referring to loans based on the borrower’s creditworthiness rather than collateral.
He said preferred lenders such as Huntington can set the terms of SBA loans, which speeds up the process — another factor that appeals to borrowers.
Huntington bases the terms on the individual’s character, credit and capacity, as well as the SBA standard operating procedures.
“What really is required is cash flow,” VanDerWeide said. “Can the debt be repaid? Typically, the debt coverage ratio required is 1.25 to 1. For every dollar in debt, the (SBA) wants $1.25 to cover that dollar. As long as you can find the cash flow, that’s a top requirement.”
With the economy healthier than it has been since the Great Recession, more small business owners are ready to take on risks such as construction projects, buying new buildings or acquiring other businesses, VanDerWeide said.
“A lot of businesses in the next five to 10 years will be coming up for sale with retirements,” he said, noting his team already is seeing an uptick in manufacturing acquisitions. “I don’t see that slowing down.”
VanDerWeide said one of the reasons for the uptick in the average dollar amount of loans from this year to last year ($145,000 compared to $106,000) is that Huntington Bank gradually has been increasing the maximum loan size it awards to match the SBA’s upper limit.
“During the Obama administration, the maximum SBA 7(a) loan size went from $2.5 million to $5 million,” he said. “We, as a bank, are moving up to that $5-million mark.”
VanDerWeide said the SBA helps mitigate risks associated with uncollateralized loans by offering a guarantee.
The SBA can guarantee as much as 85 percent on loans of up to $150,000 and 75 percent on loans of more than $150,000. SBA’s maximum exposure amount is $3.75 million. What this means is if a business receives an SBA-guaranteed loan for $5 million, the maximum guarantee to the lender will be $3.75 million, or 75 percent.
Apart from “marijuana or drug-related businesses,” VanDerWeide said Huntington’s SBA lending program serves industries across the board.
“We’re seeing everything from service companies to retail businesses to manufacturing to health care,” he said. “It’s a great time to do SBA lending.”
As an SBA loan specialist, VanDerWeide said he appreciates the difference he makes in clients’ lives when he can help them obtain loans.
“I do a lot of closings for business acquisitions, and it’s very satisfying to get a transaction done for a client, because it changes their life. I had a deal where I was saying, ‘There’s no way a client could get this $2 million loan otherwise without collateral.’
“You’re really making a difference in a business owner’s life,” he said.