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SBA Interest Soars Amongst Banks

SBA Interest Soars Amongst Banks
More and more banks have jumped into SBA lending the last few years, by either hiring experienced SBA teams from other banks, or by purchasing SBA platforms.  
Gulf Coast Bank & Trust in New Orleans is the latest institution to dive into national SBA lending, after buying CapitalSpring SBLC. The deal should allow the $1.5 billion-asset Gulf Coast to become one of the program’s 50 biggest lenders.
“We’ve been one of the largest SBA lenders in Louisiana,” said Guy Williams, Gulf Coast’s CEO. “This lets us step up and be a national player.”
The effort adds Gulf Coast to a growing list of expansion-minded banks.
The $9.2 billion-asset Berkshire Hills Bancorp in Pittsfield, Mass., paid $57 million in May for 44 Business Capital, an SBA lender in Pennsylvania that lends throughout the mid-Atlantic. Around that time, the $950 million-asset Radius Bank in Boston hired a veteran SBA lender to oversee a nationwide expansion of its SBA program.
The $4.2 billion-asset State Bank Financial in Atlanta and the $27.9 billion-asset BankUnited in Miami Lakes, Fla., have also made big moves to expand SBA lending.
While we are encouraged that more banks are lending to small business borrowers, the spike in 7(a) production is a bit concerning, because it well exceeds small business loan growth, which has been essentially flat the last few years.    Clearly, some banks are doing deals 7(a) that may have been conventional loans previously.    Moreover, the SBA 504 program has been essentially flat during that period.
Chris Hurn, CEO of Fountainhead Commercial Capital, observed:
“While there have been a tremendous amount of what I call “secondary market premium chasers” over the past few years, some of these new folks may be a little late to the game.  Many SBA BDO’s push borrowers into (almost exclusively) floating rate 7(a) loans on real estate-only SBA projects, so they can maximize their secondary market premium income when they sell off the SBA-guaranteed portion.  In a stable, flat rate environment, there have been many hungry buyers of this paper at record premiums.  But now that we’re in a rising short-term interest rate environment, SBA 7(a) loans will see increased prepays as business owners cycle out of floating rate loans and into fixed rate loans.  Premiums paid will be lowered, normalizing to historic levels, as well. 
I would expect some of these refinancings will benefit SBA 504 lenders and other conventional lenders at the expense of 7(a) loans, but I also expect to see new originations of owner-occupied commercial real estate loans swing heavily toward 504 as borrowers become less susceptible to accept rising floating rates on fixed assets.  There will still be an active and profitable secondary market for 7(a) loans, as there should be, but it won’t be quite the draw that it’s been over the past few years.”

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