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Wednesday, Feb 1, 2023

Small Business Administration Makes Big Gains

Many small businesses still find it hard to get a traditional bank loan, as tightened regulations and higher capital requirements have made lending to those companies less profitable for banks. But they might be overlooking another opportunity – Small Business Administration loans, which are partially guaranteed by that government agency.

Pasadena’s East West Bank, one of the biggest players in small-business lending, issued more than $211 million in SBA loans last year. That includes $16.4 million in export loans, for which East West was recognized last month as the SBA’s 2015 Export Lender of the Year.

Wai-Chun Li, a senior vice president at East West who manages the SBA lending department, is an evangelist for such loans for all businesses that qualify – generally, companies with a two-year average of less than $5 million in net income after taxes and less than $15 million in tangible net worth.

“A lot of people think SBA loans are a last resort for financing,” Li said. “That is the wrong opinion.”

Li pointed out that the terms of SBA loans are often more favorable to borrowers than comparable products unaffiliated with the agency.

For example, a conventional commercial real estate loan that a business owner would use to open a facility might require a 35 percent down payment, and the loan would have a term of between five and 10 years. A SBA 7(a) loan – the standard product offered by the administration – might only need a 10 percent down payment and the loan could be stretched for 25 years. That means lower monthly payments and more cash to reinvest in the business.

Because as much as 85 percent of the value of those loans are guaranteed by the SBA – and 90 percent guaranteed in the case of export loans – East West and other lenders can take on the increased risk of servicing smaller companies.

“It’s very easy to qualify for a loan,” Li said.

He acknowledges that many of the small-business owners he tries to sell on SBA loans are often debt averse, having built successful ventures without borrowing money. But he appeals to their ambition to pique their interest in taking out an SBA loan.

“I can’t change people’s style,” he said. “But I can ask them what they want to achieve.”

Factoring Fraternity

Last week, Fast A/R Funding in Calabasas purchased Continental Business Credit in Woodland Hills. Both are finance firms that specialize in factoring – loans to businesses using their accounts receivable as collateral.

It’s a niche industry where most of the players know each other. So when Fast A/R Chief Executive Matt Begley heard rumors in the fall that Continental might be for sale, he knew he had to act quickly. He had always envisioned Fast A/R eventually making an acquisition, and wanted to capitalize on the chance to pick up a company he viewed as a perfect fit.

Continental could provide an entrée into different lines of business, and Fast A/R has a proprietary technological platform that he felt could add value to Continental’s roster of clients. Fast A/R works mostly with business services and transportation companies, while Continental serves more manufacturers and importers.

“I was very excited, because it really is a complementary business,” Begley said.

But when Begley and Fast A/R Executive Chairman Jonah Schnel first approached Continental, the company was already engaged with another suitor. They didn’t let that stop them.

“We sort of brute-force wedged our way into the discussion,” Schnel said. “We could move quickly because we had the skills ourselves.”

Schnel and Begley gave Continental founder Lee Hirsch a letter of intent shortly before Thanksgiving. While their industry knowledge helped convince Hirsch that they were the right partners, Schnel said, it was their dedication to getting the deal done that really sold him.

“There was a period of time where Matt was out of the country for the bat mitzvah of his daughter,” Schnel said. “And we were having nightly calls. Nobody’s stopping because they’re going on vacation. That’s when I knew that Lee had really bought in.”

Begley recalled one lunch early on in the process, when he and Hirsch went out for pastrami sandwiches at Cable’s Restaurant in Woodland Hills to feel each other out.

“It was kind of like a third date,” Begley said. “We talked about stuff that was really core to the deal and we both walked away smiling.”

He and Schnel declined to disclose terms of the deal.

C-Suite News

Boston private lender THL Credit Advisors has hired Thomas Lane as a managing director and Brett Hinton as a director in its Westwood office. Lane was previously with Wells Fargo Capital Finance in Santa Monica; Hinton was with Fortress Group in Atlanta. … Downtown L.A. money manager TCW Group has hired Jae Lee as a senior vice president in its emerging markets group. He was previously with Standard Chartered Bank in New York.

Staff reporter Matt Pressberg can be reached at mpressberg@labusinessjournal.com or (323) 549-5225, ext. 230.

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