Before the start of what became the country’s longest government shutdown, bankers began bracing for the worst.
“All our intel was telling us it may not get kicked down the road this time,” said Rich Bradshaw, United Community Bank’s newly named chief banking officer, who as a director of the National Association of Government Guaranteed Lenders realized that stopgap spending in Washington would soon be a thing of the past.
Bradshaw, who oversees all branches across UCB’s four-state market and manages its commercial lines of business, knew that his bank would have to work quickly before SBA loan applicants became the victims of political crossfire.
If the SBA stopped processing loans under its 7a and 504 programs, emerging businesses would be unable to get their hands on working capital or finance new equipment and expanding companies would be unable to obtain funds to buy real estate. But that’s exactly what happened on Dec. 22.
Both programs offer longer amortization periods and lower equity requirements than conventional loans, making them popular with many borrowers.
To serve SBA clients who had undergone due diligence and were moving toward closing, UCB staff jumped into action, obtaining loan numbers from the SBA before the partial government shutdown kicked in.
“We were able to get all but one that we planned to close in December,” Bradshaw said.
Under the shutdown, no new loans were being approved by the SBA but the disbursement of funding for loans carrying an SBA number prior to Dec. 22 could proceed.
At County Bank, Paul Pickhardt, the SBA lending manager, also received assigned loan numbers. On Jan. 18, he closed two SBA loans at his Pelham Road office, one for a tool-and-die shop making an acquisition, the other for a franchise restaurant expanding to a new location.
Pickhardt, Bradshaw, and other local lenders continued to work with SBA applicants despite the shutdown. At County Bank, which did $15 million of SBA lending in 2017 in its first full year as a program participant, several more government-guaranteed loans were moving through the pipeline before the Trump administration’s Jan. 25 announcement of a temporary government reopening until Feb. 15.
But, because all bets are off on whether the government will be open or closed after that date, Bradshaw suggests that small-business owners who may be looking for financing visit a banker sooner rather than later. Most commercial borrowers need time to work with their lender to determine whether a conventional loan or an SBA loan works best for them, he said.
Prior to the reopening, some bankers had expressed a willingness to consider workarounds for clients whose SBA loans had not yet been greenlit.
“We are able to do some interim bridge lending, but it’s limited in what we can do,” UCB’s Bradshaw said at the time.
In its website messaging to participating banks, the guaranteed lenders association said that interim loans can be made “only under very limited circumstances” and are made “wholly at the lender’s risk.”
Any bridge loans would be refinanced with an SBA loan, Bradshaw added.
As the partial government shutdown neared its second full month, the risk for some small-business owners who had not yet received funding grew, especially for companies seeking to close real-estate deals.
“The seller is saying, ‘You’re getting close to your date’ or ‘Have you passed your date’ and ‘We either need more money or we need to get another buyer,’” said Connally Bradley, executive director of Appalachian Development Corporation, a Greenville-based community development corporation that offers 504 loans providing up to 40 percent of a project’s total cost.
One of Bradley’s 504 clients, the founder of a computer repair and IT network management firm, expressed frustration over his inability to receive the $550,000 he needed to complete a land purchase, relocate his business, and hire more workers.
While the seller “understands the situation,” said Brooks Troxler, owner of Charlotte-based Trox Tech, his sales and purchase agreement noted “sell to someone else if loan is not approved” and Troxler had heard that a big-box store had come calling.
If the land deal fell through, Troxler said, “There’s nothing, nothing available.”
To date, “24,500 dollars is what’s coming out of my pocket” to cover escrow, appraisal, and environmental fees, he added.
Sustained SBA gridlock could also have driven some potential borrowers to go elsewhere for a loan, noted Bradley, whose shop loaned $13 million to small businesses in the fiscal year ending September 2018.
“Maybe at a higher interest rate, maybe more equity, perhaps … I am frustrated for our businesses and our applicants, for sure,” he said at mid-January.
Increasingly, bankers and borrowers pushed back against the shutdown.
At County Bank, Pickhardt, his business development officer and loan assistant got together and completed a form letter in support of business as usual.
At United Community Bank, where the average size of a 7a loan is just under $700,000 and where year-to-date SBA production was 39 percent higher in the third quarter of 2018, Bradshaw assisted in helping his national trade group with blanketing decision-makers with stories from the field of the shutdown’s on-the-ground impact.
Nationally, SBA 7a loan volume exceeded $25 billion in Fiscal 2017. Fast-forward, and in January 2019 alone “one-twelfth of that is a big number,” Bradshaw added.
Troxler, who earlier had contacted North Carolina Sen. Richard Burr about his real estate woes, expressed empathy for those who found themselves in similar predicaments.
Things are worse for the little guys coming up behind him, Troxler mused.
“Imagine starting a business and you first run into a wall,” he said.