A recent study looked at the quantity of SBA-backed funding to branches to determine the big banks commitment to small business
In a growing economy when funding approval rates are increasing, one would think that small business administration (SBA-backed) funding issued by large banks to small businesses would be leading the charge. Not so, according to recent research.
What is an SBA funding?
funding backed by the U.S. Small Business Administration help small business owners get funding by guaranteeing up to 85% of funding issued by lenders, in this case banks. SBA funding are designed for business owners with strong borrowing histories. The application process is extensive taking several weeks to receive funding, if you are approved.
Unlike a Merchant Cash Advance, an SBA funding will not be funded within a few days and you need to have excellent credit. In fact, most customers who were approved for SBA funding, met the following criteria::
- An annual revenue over $180K per year
- A credit score of 680 and above
- Time in business, over 4 years
Why an SBA funding?
Despite a long and extensive documentation process, many small businesses continue to go through the process of applying for an SBA funding.
Why?
SBA funding are very much in demand by small businesses and entrepreneurs because they are the type of longer term, lower rate financing offered by banks.
Banks incentivized to provide SBA funding
The SBA doesn’t lend money directly to small businesses. Rather, SBA funding are bank funding that are guaranteed by the SBA. Federal monies are used to guarantee a percentage of funding administered by banks as these financial institutions have more incentive to lend money to small businesses.
Stated another way, the SBA backs up a portion of the bank’s small business funding reducing some of the risk for lenders or banks. By offsetting some of the risk, the idea is that banks will make traditional longer term, lower rate funding available to more small and medium-sized businesses.
SBA lenders
The large money-center banks such as Bank of America and Wells Fargo are recognized for their contributions to small business. While their contributions tare very much appreciated, what do the numbers actually show?
MultiFunding, a Pennsylvania business that helps small and midsize companies find funding recently conducted a study of SBA lending activity that uses the number of a bank’s branches as a proxy for its size and reach. In other words, the greater the number of branches in a bank’s network, the greater its size and reach.
This methodology differs from other SBA lending rankings in that it relates funding count to geographical reach as an indicator of commitment to small business funding rather than just look at the total number of SBA funding.
Big banks commitment to small business
Among the 10 largest banks based on assets, TD Bank generated the most 7(a) funding, the most popular funding program, with an average of three funding per branch. Wells Fargo ranked second with an average of one SBA funding per branch in 2017.
Amongst the large banks, Bank of America ranked last producing an average of one SBA-backed funding for every 30 branches. When asked about these findings, Don Veccharello, a spokesman for Bank of America said that the company’s SBA funding business “represents just 5 percent of its substantial small-business offerings-and that it is the growing part”.
Smaller banks making funding on behalf of the SBA were also included in the study. In fact, there were several with only one branch. Compare their results to the big banks: Celtic Bank, in Salt Lake City approved 1,417 funding, Independence Bank of East Greenwich, Rhode Island approved 1,1411 funding and Live Oak Bank in Wilmington, North Carolina approved 1,055 banks.
They significantly outperformed the big banks when comparing the number of SBA funding issued to the number of branches in their network.
Summarizing the results
From these results, we can see that the big banks do much less for small businesses when compared to smaller lenders in the SBA lending universe. Many of these big banks are the same ones that received tax-payer funded bailouts during the financial crisis of 2008 and 2009. Some of them have also paid record fines for legal settlements.
In Closing
If you are a small business that does not want to go through the extensive documentation process for an SBA funding, or will not qualify, and need your funding tomorrow, please give us a try. Contact us or complete an application online.
