Major delays in SBA-backed loans are slowing recovery

The COVID-19 pandemic hasn’t been unkind to Stephen Schober’s 35-year-old metal-supplies business. Several employees at Metal Supermarkets, which has 98 franchise locations in the U.S., Canada, and U.K., did become ill but recovered; and the business itself was deemed essential, so it never had to close its doors.

But Schober has a problem: Six of his newest American franchisees are having difficulty getting financing. Lenders, he says, are now requiring more rigorous due diligence for loans backed by the Small Business Administration—even though Metal Supermarkets’ business model has been deemed eligible under the SBA affiliate rules and is listed on the agency’s Franchise Directory.

Among other things, he says, lenders are now asking more questions, and some want higher down payments, more liquidity, and more outside income. They also require new businesses to hold off building out a location—even if owners are using their own money—until all of the SBA documents are signed and sealed.

As Inc. reports, while the SBA is widely known for the Paycheck Protection Program, the now $284.5 billion forgivable loan offering, the agency has a number of longstanding programs meant to encourage lenders to underwrite loans. In the last few months, business owners across the spectrum are reporting signs of credit tightening within these programs—even as demand is surging. Business starts reached record levels in the third quarter of 2020, with 1.5 million new business filings, according to the Commerce Department, before falling back to a seasonally adjusted 1.1 million in the fourth quarter. 

“We’re seeing some deals that used to take four to six weeks now take four to six months,” says Evan Goldman, a partner and chair of the franchise and hospitality group at A.Y. Strauss, a law firm in Roseland, New Jersey. “Banks and lenders generally–whether SBA or not—are just being very cautious lending right now,” he says.

The pandemic is still dictating the pace of loans, says David Nilssen, CEO of Guidant Financial, a Bellevue, Washington-based financial advisory firm, which also reports lending delays at some of its 8,000 small business clients across the country. The U.S. continues to log more than 100,000 cases of coronavirus per day. “That number needs to come down dramatically for banks to have confidence that they can make these loans happen,” Nilssen says. Read the full story.