By WOODY WOLLESEN
Earlier this year, the U.S Small Business Administration implemented a new measure aimed at helping improve access for veteran small business loans. Currently, SBA Express loans of $150,001 to $350,000 have an up-front guaranty fee of 3%. The new measure removes all of those veteran borrower upfront fees. https://www.sba.gov/offices/district/pa/pittsburgh/resources/sba-business-loan-information-veterans
As well under the Veterans Advantage program the up-front guaranty fee for 7(a) loans (other than SBA Express) of $150,001 up to and including $5,000,000 for qualified veteran small businesses has been reduced by 50% https://www.sba.gov/sites/default/files/lender_notices/5000-1354.pdf
The most important question for vetrepreneurs is how does it impact their access to capital?
Upfront it should also be emphasized that any relief in costs for vital veteran business financing or capital is a welcome and applauded change. Helping and supporting veterans should be a national priority.
GOOD, BAD OR INDIFFERENT?
First a few caveats for context should be understood.
* It must be emphasized that the SBA is not a direct lender in any form to small business (veteran or otherwise). SBA programs only provide credit enhancements or loan guarantees. Any and all direct lending by definition can only occur through or by commercial banking or other commercial lending institutions.
* As such any and all loan decisions for any veteran borrower will always lie singularly with those commercial banking or other lending institutions. SBA has no direct input or control whatsoever respecting those commercial lender decisions. Whether any veteran enterprise borrower is or is not qualified for a loan lies solely with the commercial lender.
* Whether any SBA lending program might or might not be utilized by any commercial lending institution is a singular decision by that entity. From the lending institution side of the equation the invariable questions will always be:
* whether the program increases bank “quality lending” opportunities;
* actually fits the institution’s lending culture and/or market segment; and
* internal costs, both monetary and human resource, to incorporate the SBA credit enhancement program(s)?
* Note, that although flow-through fees to veteran borrow candidates might in some fashion indirectly weigh in the balance in any of the above noted factors, there is no cost impact to the bank (SBA fees are 100% borrower related).
Given so many factors in play at any given point or period in time within US small business lending operations, qualitatively measuring economic elasticity between SBA veteran guarantee lending fees and increased veteran lending would be a highly difficult undertaking (even assuming cost benefit made that a prudent undertaking).
It is suggested that even without a detailed study the logical answer would be in the resounding negative. Why?
In the real world of banking/lending and related inter relationships with government programs that might impact or affect, there exists no such thing as a “single silver bullet.” Commercial banking/lending is in fact a highly intricate and interlaced system of variable economic factors with innumerable types of lenders. Any and all those factors can and usually do impact veteran borrower access to capital.
If a genuine increase in veteran access to capital was to be the focus, it would require far more involved and intricate changes within the national lending systems. A change in SBA program fees for veterans, although welcome and helpful, would not in itself increase veteran access to capital.
(Author Profile: Woodrow D. Wollesen, recognized national small business financing expert, military veteran; former US SBA Small Business Financing Champion, (8 years) Board Member, Executive Officer, Instructor with the prestigious National Women’s Business Center, Washington, DC; NWBC 2005 Man of the Year, founder/chairman of Operation Veteran Empowerment (Ultimate Financing Guide – the encyclopedia of business financing) See http://www.operationveteranempowerment.com/ http://www.opvetempower.com; see also more extensive background profile at http://www.ultimatefinancingguide.com/about-the-author/