Out-of-state banks top list of SBA lenders

Even with Small Business Administration (SBA) loans, apparently the rich still get richer.

But despite large, and largely out-of-state banks dominating the ranks of SBA lenders in Northern Colorado and the Boulder Valley, the results are somewhat misleading, experts said, and some significant changes may be afoot that level the playing field.

“It’s the 80-20 rule. It’s true around the nation, and it’s true here,” said Francis Padilla, the Colorado SBA district director. “Eighty percent of the loans are done by 20% of the banks.”

In a recent examination by BizWest of SBA loans in the region, rated by their cumulative loan amount, large, out-of-state banks dominated the first page of results. In fact, it wasn’t until the eighth lender, Community Banks of Colorado, that the list showed a bank with Colorado headquarters.

Most experts were slightly surprised, but not dismayed, because it’s no secret that large banks dominate the big loan section of SBA loans. In addition, larger banks possess the resources to dedicate staff to handle the intricacies of all SBA loans.

Padilla said she noticed the list does include banks with local branches that were, until recently, Colorado-based banks. In today’s rapidly changing banking industry, with mergers and acquisitions, many of those banks still have employees who were there when it was local.

“They still have local branches, and they are still in those communities making loans,” she said.

Nim Patil, the chief strategy officer at the Colorado Enterprise Fund, said he was initially surprised at those numbers, but after checking them said they are easily explainable. While the Enterprise Fund is “a non-profit lending institution that offers loans to small businesses unable to get traditional bank financing,” it has steadily risen to be a powerful element in 7A SBA and microlending.

The difference, Patil said, is that the SBA’s 504 lending is focused on commercial real estate lending, for instance purchasing or building commercial locations. Those loans are, by and large, much larger than a community bank can handle — up to $250 million.

“All lending in traditional banking is based on deposits and assets,” Patil said. “If you have $100 million in assets, there’s a maximum amount you are allowed to lend out.”

J.P. Morgan Chase, with almost $4 trillion in assets, can simply loan out a lot more money, taking advantage of the SBA loan guarantees and offering better rates. Even in 7A lending, where loan amounts are smaller, having a team dedicated to the intricacies of SBA loans allows the larger banks to offer slightly better terms.

“We’ve just cracked what I consider to be the first page in 7A loans,” said Patel, about SBA loans that are used for working capital. The Colorado Enterprise Fund institution dates back to 1976, but does not participate in 504 loans.

Sharon King, the executive director at the Boulder Small Business Development Center, said the SBA does have preferred lending partners. “They can make these loans more easily, as it’s a focus for these banks.”

Still, King said as she looked over BizWest’s list, she saw a good number of banks that may have out-of-state headquarters but do have a significant number of Colorado branches — even excluding the large national banks. She also noted that small business owners would do well to start with their own local bank, and their local Small Business Development Center.

“We hope that small business owners will check with us, and we can tell them all the criteria all lenders will use,” King said. “There’s a great deal of difference between what commercial banks will do and what a microlender can do.”

“Microlenders have expanded dramatically, dating from the recession; their sweet spot is from $5,000 to maybe $50,000,” King said. “That’s why we really like it when someone comes to us, and we can help them find the right resource.”

Of course, not all small business loans are SBA loans, as smaller loans can often be handled without the SBA guarantees. There’s a low threshold even for 7A lending, and obviously smaller loan amounts preclude going through the hoops of an SBA loan.

The SBA itself acknowledges that its lending procedures are probably a little too onerous for smaller banks to work with. 

“We’ve simplified our standing operating procedures to try to make that easier,” she said. The SBA also has instituted a program that matches borrowers with lenders that can make it easier for smaller banks to get into the game.

Local banks are also trying to ramp up their games. For instance Elevations Credit Union is making a concerted effort to make commercial real estate a bigger part of its operations.

At Points West Community Banks, president Mark Brase said his bank works with B-Side Capital, a well-known Colorado SBA lender. “We were recognized by them as one of their emerging 504 lenders of the year.”

Click to view the SBA Lenders List via BizWest’s Databank.

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