Just a few years ago, U.S. Army veteran John Palmer and his 5-year-old son were living out of a car in El Cajon.
A veterans’ service organization provided Palmer with a bit of cash to get back on his feet and start shopping for a small-business loan. But he was initially rejected by a big bank that cited his lack of cash flow and collateral, and told him his credit score was a mess.
Eventually, the nonprofit group CDC Small Business Finance Corp. helped Palmer obtain a $20,000 microloan in 2016 from the U.S. Small Business Administration to expand his Gardena-based nascent security business, Servexo Protective Services Inc.
“The value of SBA means a lot, especially when there is no traditional way to get a loan,” Palmer said.
But it’s become increasingly rare for L.A.’s veterans and other entrepreneurs to obtain those kinds of loans. SBA officials have indicated that lending out of the Los Angeles office has steadily declined in recent fiscal years as the economy has healed – many borrowers have simply turned to commercial banks where it’s gotten easier to get approved.
For veterans, that’s not always the case. Hazel Beck, director of the SBA-funded Southern California Veterans Business Outreach Center, worries that vets aren’t getting enough attention from the SBA.
“The access to capital presents a challenge to vets, particularly,” Beck said. “First, when you think about vets, their credit may not be where it should be, given sudden deployments and extended periods away from their home base. This affects their credit,” she said. Beck suggests that more third-party vendors need to offer vet-owned businesses loan programs of up to $250,000.
The number of SBA-funded loans earmarked specifically for veterans has fallen to a decade low in the Los Angeles region, and some programs have sunset, according to data reviewed by the Business Journal.
The Patriot Express program expired at the end of 2013, and the Veteran Advantage program, which replaced Patriot Express, expired Sept. 30. Over the past decade in the L.A. area, the number of loans overseen by the SBA to veterans has plummeted nearly 66 percent to 66 in the latest fiscal year ended Sept. 30, from 193 in 2008 at the height of the Great Recession, according to the data.
The Veteran Entrepreneurship Act of 2015, which became effective Oct. 1, 2015, offers a maximum loan of $350,000 and provides loan fee relief to veterans and their spouses. Still, Beck says, “More work needs to be done. Vets are waiting for a loan product to come out just for them.”
William Manger, associate administrator for the SBA’s Office of Capital Access in Washington, D.C., recognizes the tough job of lending to vets, but he attributed the downtick, in part, to increased accountability imposed in veteran lending. In order to receive fee relief, for instance, the SBA now requires vets to submit a declaration of their status. He said that trues up the data, which, in turn, has led to a slight decline in vet loans.
Regionwide, lending is up
The figures are somewhat startling as the SBA’s Los Angeles district office in Glendale has consistently handled the most SBA-guaranteed loans in the nation over the past decade. The volume of lending in Region 9, which covers California (and Los Angeles), Arizona, Hawaii, Nevada and Guam, has nearly doubled to $4.9 billion in SBA loans in 2018 from $2.6 billion in 2008.
Big banks, too, are seeing record lending, which they attribute to the improved economy.
“We’ve seen some of the lenders in the country open up their credit boxes wider and are now doing loans conventionally that they had not done three, four years ago without the SBA,” Manger said.
This is a trend Manger and SBA analysts have observed since earlier in the year as they began receiving reports from the heads of small-business lending at the nation’s largest banks regarding an anticipated downtick in SBA-guaranteed lending.
Bank of America Corp., for instance, extended $1.2 billion in credit directly to L.A. small businesses in 2017. By the end of Sept. 30, the outstanding loan balances had grown to $1.4 billion, a bank spokeswoman said.
Franco Terango, Bank of America’s small business division executive in the southwestern United States, said his bank’s data shows small businesses growing in confidence and willingness to borrow.
“Owners are emerging from the crisis, saying that the water is OK to jump in, or at least put their feet back in,” Terango said.
This year, Wells Fargo & Co. saw a similar trend. It provided $1.4 billion in credit to 29,758 small businesses in Los Angeles County, a bank spokesman said.
Rob Meyers, customer segment strategy leader with Wells Fargo’s small business relationship banking team in the L.A. region, said customers are reporting revenue is up and access to credit is becoming easier.
“What we are seeing is a great deal of optimism in Southern California,” Meyers said. “We are certainly investing in the L.A. market.”
Veteran business success story
For Palmer, who served in the Army from 2008 to 2014, the SBA loan was a lifesaver.
The initial microloan allowed his company, Servexo, to consolidate debt and go after larger government contracts, he said.
This year, Servexo became one of 17 companies nationwide to win the status of certified contractors to work with the General Services Administration, the federal government’s procurement agency. The certification gave Servexo the inside track to bid on larger government contracts that weren’t publicly advertised.
The firm today expects revenue of between $1 million and $5 million for 2018, and employs 65 people. A few months ago, Servexo got an SBA 7(a) Community Advantage loan “targeted to underserved markets” for $200,000. The loan, which is not specifically targeted at veterans, permitted Servexo to more than double the size of its main office in Gardena this month, hire more personnel, buy more pickup trucks for its tiny army of security guards and bid on drone contracts.
