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PCBB Banc Investment Daily August 29, 2014
Banc Investment Daily
August 29, 2014

Partnering Carefully

The popular children's television program Sesame Street has long been known for its efforts to promote diversity, inclusiveness and acceptance. That is why it probably came as a shock to the nonprofit organization behind the show when fans came out in force to denounce its announced partnership with advocacy organization, Autism Speaks. Protesters have several beefs against this group and there's even a Facebook page dedicated to its boycott. Regardless of where one stands in this debate, we genuinely hope that support for both Sesame Street and the autistic community continues to gain traction. The controversy does illustrate the risk of partnerships, even those with the best of intentions.
We're also big believers that banks should be at the forefront when it comes to supporting worthwhile community initiatives and many community banks do just that. That is why we read with great interest a recent speech by SBA Administrator Maria Contreras-Sweet about the agency's latest efforts to try and jumpstart minority lending.
The SBA is responding to a trend that's become obvious over the last several years. Since the mid-2000s, the number of business loans under $150K guaranteed by the SBA each year has fallen from roughly 80,000 to 24,000, according to a recent report by the Institute for Local Self-Reliance. Meanwhile, the SBA's average loan size has more than doubled to $362K.
It appears that really tiny companies, start-ups, and businesses (mostly owned by women and minorities according to the data), are being disproportionately impacted by this trend. SBA data shows, for instance, that 4 out of 5 loan applications it receives from Hispanic-American and African-American business owners are for $150K or less.
To try and balance things a bit more, the SBA is asking banks to be a part of this latest effort. For instance, if a small loan isn't feasible for a given bank, the SBA is asking the bank to partner with a micro or Community Advantage lender to make it happen.
Another way the SBA is trying to encourage more banks to participate in its lending initiatives is by providing a better model by which to measure a borrower's creditworthiness. The SBA says the model, which has been tested and refined for 10+ years, ensures that risk characteristics determine who is deemed creditworthy and who is not.
Finally, the SBA is trying to eliminate some of the arduous paperwork traditionally associated with its loan process. The agency says it is working on an interactive and user-friendly lending platform, called SBA One that will automate document uploading and form generation and allow electronic signatures. The agency expects SBA One to save banks hours of time and thousands of dollars for each general small business loan processed and we hope it does just that.
No matter what you think about the SBA, there can be many good reasons for community banks to get involved with the agency if you aren't already doing so. Community bankers know that small firms make up 99.7% of American employers because many of those businesses are your customers.
No matter your views, partnering with the SBA and other agencies can provide your bank with an opportunity to capture more business and more customers over time. Every government program has its issues, but over the years one could argue the SBA has seemingly done pretty ok with many community banks.