Pub. 10 2020-2021 Issue 4

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S — H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S November • December 2020 15 F or many financial institutions scrambling to assist small busi- nesses by participating in the Small Business Administration’s (SBA) Paycheck Protection Program (PPP), implementing new technology has been the only possible way to handle the crush of PPP applicants and paperwork. Between the numbers of applicants, the strong demand for limited funds and the restrictions on face-to-face transactions, financial institutions without automation were quickly overwhelmed. 70% of bank executives and directors said their institutions had implemented or upgraded an application or technology specific to PPP loans, according to Bank Director’s new 2020 Technology Survey. Now, many of the nearly 5,500 SBA-approved lenders participating in the PPP are weighing the option of le- veraging that technology to continue offering SBA loans beyond those tied to the PPP. For some community financial institutions, SBA lending represents a new product. Indeed, only about 1,700 lenders participated in the SBA’s 7(a) program in fiscal 2019. For institutions considering plan - ning to continue SBA lending after PPP, it may also provide an opportunity to obtain new customers. A third poten- tial benefit is that SBA loan programsmay provide a way to restructure existing loans for some current clients while ensuring greater portfolio stability for the bank or credit union. The portion of any loan that the SBA guarantees does not count against the financial institution’s lending limit. Banks and credit unions can sell the loans on the secondary market yet retain servic - ing rights and some fees. “SBA lending provides liquidity , while you retain the relationship and you get paid for servicing,” noted Mi - chael Wear, owner of 39 Acres Corp., which specializes in banker training and bank consulting services in cred- it risk underwriting and loan portfolio risk. “A side benefit is when you help a business owner who’s not having the best day financially, they’re not only appreciative, they become great word- of-mouth advertising and references for prospects,” he said during a recent Abri - go webinar on SBA 7(a) lending. During the last recession, the SBA increased its maximum loan guarantee to 90% of the loan amount (from the current cap of 85% on loans of less than $150,000), and while it hasn’t yet done so for this recession, it has increased loan sizes and streamlined processes, Wear noted. Among the webinar participants sur- veyed during the session: • 31% said they anticipate their insti - tution will do more SBA refinancing of existing debt going forward • 18% said their institution doesn’t currently do SBA lending besides PPP but plans to • 18% said their institution plans on using government guarantees to ob- tain new customers • 34% said they anticipate no change at their institution in SBA lending volume or use. Some commercial lenders might question why they should be talking about SBA lending now when they ha - ven’t even processed PPP loan forgive- ness applications for all of their cus- tomers or members yet. Or, they might wonder whether it’s too late to start 7(a) lending if they’ve never done it before the PPP. “It’s not too late to start, but it’s later than you think,” Wear said. Lenders doing standard 7(a) SBA lending, considered the “mothership” of SBA loans, Wear said, will likely need a learning curve, and even lend- ers that have worked on 7(a) loans in the past may find that a lot has changed in recent years. SBA 7(a) loans have a maximum loan amount of $5 million, but multiple loans are allowed. Beyond PPP: SBA Lending Can Help Banks, Credit Unions Grow, Mitigate Risk continued on the next page BY MARY ELLEN BIERY, ABRIGO