The strong economy is reflected in the growing loan portfolios of Minnesota’s small business lenders. The Minnesota district office of the U.S. Small Business Administration (SBA) posted a record fiscal-year 2016 that resulted in 1,674 business loans through commercial banks and other lenders that totaled $506 million. The SBA also provided partial guarantees on 275 real estate-related loans to business owners. Minnesota ranks 12th in the nation in the number of loan guarantees and 15th in the nation in total dollars out of 68 district offices, according to Andy Amoroso, deputy district director of the Minnesota office. Nancy Libersky has been SBA Minnesota director since 2010.
Q: What kind of businesses qualify for SBA loans?
A: SBA offers guaranteed loans to new and existing small businesses across nearly every industry. To qualify, the business must be for-profit, meet our eligibility and size standards. The owner needs to have equity to invest in the business and not be delinquent on any other federal debts, such as student loans or child support.
Q: Why is there a need for the federal government to guarantee bank-made loans?
A: The SBA exists to help small businesses succeed and they can’t do that without access to capital. An SBA guarantee helps loosen the bank’s lending ability in three ways. First, with an SBA loan, banks don’t have the guaranteed portion of the loan counted against their lending limits. Second, an SBA guarantee, from 50 to 90 percent, depending on the loan, limits the bank’s potential loss if the business fails. Third, many lenders will not do a loan for a new business without an SBA guarantee.
Q: Is it true that women and minorities are the fastest-growing small-business borrowers?
A: The SBA has made great strides ensuring business capital reaches those that need it the most. This includes gains in SBA lending for business owners who are women, veterans, Hispanics, African-American, Native Americans, Asian-Americans and more. For example, from fiscal 2011 to 2016, our [operating] loans increased by 65 percent for Hispanic Americans, 45 percent to African-Americans, 44 percent to Asian-Americans, 33.8 percent to women-owned businesses and 12.9 percent to veterans.
Q: Participating lenders just posted a record fiscal year of small loans to Minnesota businesses. Please address that, the size of the Minnesota portfolio, the types of businesses, median loan size and how that portfolio performs in terms of default rates.
A: In fiscal year 2016, the SBA guaranteed nearly $690 million for Minnesota small businesses through 2,132 loans. The median size of a microloan was nearly $16,000 and the median size for our larger 7(a) [operating] and 504 [real estate] loans was nearly $350,000. Some of the industries we see getting the most SBA guaranteed loans nationwide include food service, construction and retail.
SBA loans perform better than conventional loans because before the bank submits the application to SBA, the bank approves it internally, just as it would a conventional loan. Our processing center reviews the application again to ensure the requirements are met, data is correct and that financial information and the business is sound. The bank then offers a longer term and lower rate through our program.
Q: How does a small business with expansion plans apply for an SBA-insured loan?
A: The SBA does not make direct loans. We rely on SBA-certified lenders to do that. Once the lender agrees to become involved, it is the lender that submits a completed loan application to SBA. Although SBA loans have relaxed collateral standards, both we and the bank want to see that you are committed to your businesses success by having collateral of your own to secure the loan.
Q: What are your lender partners telling you about growth prospects for their small-business loan portfolios in 2017?
A: There are over 400 SBA certified lenders in Minnesota and we are hearing optimism when they talk about the future of small business lending in the state. This year, SBA made permanent a program that allows small businesses to refinance their existing debt on fixed assets and business expenses. We know that last time this was offered in 2012 it helped many business owners access funding to grow their businesses and that the lending community is looking forward to helping them do the same thing now and moving forward.