Special Report: It’s SBA Loan Season

Special Report: It’s SBA Loan Season
The VSEDC offices in South Los Angeles. (Photo by David Sprague)

There are more than 1 million small businesses registered in Los Angeles County, so when the Small Business Administration shifts its policy, the region notices.

Last month Isabel Guzman, the SBA Administrator and member of President Joe Biden’s cabinet, spoke to local lenders and businesspeople in a conference room atop the Dorothy Chandler Pavilion in downtown.

Guzman, who is originally from Burbank and previously worked for her family’s chain of veterinary clinics in the region, had led the charge on pandemic relief fund distribution after being sworn in almost four years ago.

The administration’s focus has since shifted to small-dollar lending and government contracting, and nonbank lenders have taken note.

“That’s where all the changes have been focused. How can we simplify our lending products to encourage small dollar loans,” Guzman said.

Weeks after her appearance in Los Angeles, Guzman announced new government-backed credit lines of up to $5 million for small businesses in an interview with CNBC.

Government-backed credit lines are financing options partially guaranteed by the SBA. These funds are distributed by banks, credit unions and licensed financial institutions. The new capital lines announced will have an annual fee and maximum interest rates based on the prime rate with an added 3% to 6.5%.

How it will impact L.A.

L.A. may be a beneficiary of the SBA’s new small-dollar focus and government contracting emphasis.

Julie Clowes, the director of the Los Angeles District Office for the SBA, attended Guzman’s speaking event in May. While the policy shift hasn’t significantly changed day-to-day operations for the agency’s outpost here, she said the administration’s recent reclassification of the Community Advantage loan program from pilot to permanent means more nonbank lenders feel confident dabbling in the government-backed financing.

“We’re hopeful that we can actually start adding a few more (community development financial institutions),” Clowes said. “Last year we had probably twice as many calls.”

The Community Advantage program had been in a flux state since its introduction in 2011. Since then, it’s become a key tenant of the agency’s 7(a) loan program – its flagship financing offering Guzman has pushed to expand under this administration.Community Advantage loans go up to $350,000, serving as a middle ground between micro thousand-dollar loans and traditional bank loans of more than $500,000.

The administration itself doesn’t deploy this capital. Instead, lenders classified as “mission-based,” whether it be a community development financial institution or a community development company, can be licensed to dole out the funds.

Last October the administration made the program a permanent part of the SBA’s buffet of offerings, and this year the administration issued three new licenses to nonbank lenders specifically in underserved markets.

In theory, offering a product that leaner, nonbank lenders can employ will allow financing for entrepreneurs who may be turned away from larger banks.

“Nonprofit lenders tend to look more holistically at the business,” Clowes said. “Their evaluation criteria might not be quite as stringent as a traditional commercial lender.”

Ben Walter, the chief executive of Chase Business Banking, works with businesses with less than $20 million in revenue, including roughly half a million firms in Southern California. He called recent changes to SBA loans, especially in regard to paperwork requirements, “very welcome.”

He added that the process is more streamlined and more can be done online than before, making things much simpler.

When it comes to community development corporations being involved in SBA loans, Walter said he wanted “to make sure they were held to the same standards” as traditional banks and were not selling loans but still viewed the changes as positive overall.

According to data from the U.S. Department of the Treasury, there are approximately 20 certified community development financial institutions in Los Angeles County.

One of these is the Vermont Slauson Economic Development Corp., which is based in the eponymous neighborhood in South L.A.

The women’s business center at Vermont-Slauson was a part of Guzman’s L.A. tour.

She cut the ribbon on the new center, one of the 17 new women’s business centers opening across the country.

The Vermont Slauson Economic Development Corp. focuses on minority communities in South L.A., offering workshops and training. The center has plans to create a lending pipeline for the entrepreneurs going through its program.

“We understand the unique obstacles that women entrepreneurs face, especially women of color who have been underserved and excluded from comprehensive support,” said Quentin Strode, the president and chief executive of Vermont Slauson Economic Development Corp.

The women’s center opened after the corporation launched a startup academy earlier this year. The first cohort from the entrepreneurship incubator are working through its six-month curriculum, with the second class expected to begin in October.

Bullish on contracts

Los Angeles’s city council has been bullish on small business – at least so far in its proposed plans and press conference appearances.

L.A. Mayor Karen Bass attended the Vermont Slauson Economic Development Corp. Women’s Center opening last month, days after her office announced two programs for small businesses. LA Optimized 2.0 was pitched as a program looking to advise businesses on their digital presence, a second iteration of a program run by the Economic and Workforce Development Department. Lapreneur, meanwhile, is a new partnership between the Mayor’s Office of Business and Economic Development, BusinessSource Centers and Loyola Marymount University to offer entrepreneurship education.

Los Angeles Mayor Karen Bass, center, at the ribbon cutting for the new center for the Vermont Slauson Economic Development Corp.

While these appear as advisory services, the mayor’s office has previously promised capital to back up the small business expansion it wants.

At the press conference for Banc of California’s relocation to L.A. last year, Bass launched the Mayor’s Contract Financing Assistance Program, which aims to offer financing for businesses using government contracts as collateral.

The mayor’s office has not disclosed how large the fund is yet.

The number of small businesses in Los Angeles County has grown significantly in the past decade.

According to the Small Business conducted by the SBA, over a quarter-million small businesses set up shop in the region between 2014 and 2022, and the most recent count totaled nearly 1.4 million small businesses.

SBA director Clowes said L.A.’s aerospace industry could greatly benefit from the administration’s request for proposals and accelerator programs that have the potential for government contracts at the end.The administration has courted tech companies as traditional venture capital or private markets ice out riskier bets amid high interest rates.“A lot of tech companies in particular think ‘oh SBA is not for me, right? It’s for mom-and-pop businesses,’” Clows said. “That’s simply not true. We have programs and services for absolutely every business.”

Interim Editor Hannah Welk contributed to this report.

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