News & Media

By Stephen P. Schmidt – Reporter, Louisville Business First

May 5, 2023

Listen to this article3 min

Editor's note: See our related cover story on SBA lending.

Andrew Pyles, president/CEO, Eclipse Bank

Have you experienced any changes in the SBA lending from your side of things since recent bank failures began?

“We initially saw a little tightening in the secondary market for SBA loans, particularly given that Signature Bank was a large player in that market, but things largely seem to have normalized. However, nothing has changed in the way Eclipse specifically approaches SBA and business lending. We’ve remained committed to serving our local business communities just as before.”

What are you hearing in general from your small business clients about this topic?

“We had a handful of questions about the bank failures from clients, but nothing in terms of less credit/SBA availability.”

Have you noticed more small businesses applying for commercial loans instead of SBA loans recently?

“SBA loans are commercial loans. When clients approach us for a lending need, they ask for a loan. They rarely specify SBA. It is up to us to determine the best solution for their individual circumstance, which our bankers do a tremendous job of.

The SBA is utilized for us to say ‘yes’ more often in cases when there are collateral shortfalls, short time in business, expansions, or projection-based circumstances … I will say that demand remains robust, especially for business-acquisition financing. Given the pace of baby boomers retiring and selling their businesses, we see this trend continuing for some time. We’ve also seen an uptick in C-suite executives exiting the corporate world in favor of owning their own business.”

What is the average loan amount that is being requested?

“The credits in our pipeline range from $300,000 to over $3 million, but the average is probably just north of $1 million.”

How often does your team sign off on a new SBA loan? Has that frequency changed in recent weeks?

“We’ve not seen any change in the frequency of SBA or business lending in general in recent weeks.”

How do you see this situation playing out in the upcoming months? When do you think the waters will calm?

“The waters seem to have calmed, at least for now. The bigger concern for borrowers is the current interest rate environment rather than bank failures. But our bankers do an excellent job articulating the pros and cons of the SBA program. At the end of the day, the SBA allows the owner to raise capital without dilution of equity in their business, which is still a strong value proposition.”

Jim Valete, EVP, chief SBA lending officer, First Savings Bank

What are you hearing in general from your small business clients about recent bank failures?

“We have not heard a lot from our SBA borrowers about the SVB and Signature failures specifically. I do think there has been an indirect effect related to uncertainty. We have seen many borrowers holding back a little bit in major expansion plans.

I believe some of this is related to lots of news regarding the future of interest rates and potential recession. These are two huge variables for small businesses and the uncertainty regarding these factors translates to risk. They are all thinking ‘How much risk should I be taking right now?’ The bank failures only added another layer to the uncertainty.”

Have you experienced any changes in the SBA lending from your side of things since the fall of Silicon Valley Bank and Signature Bank?

“One note of interest is that the uncertainty regarding interest rate increases [has caused] many deals that were marginal — but might have had a path for approval — now look even tougher to do.”

Have you noticed more small business applying for commercial loans instead of SBA loans recently?

“We have not seen this as a trend. If anything, we’re beginning to see the opposite. Banks are getting a little more conservative — and some deals that may have been conventional, commercial loans are being steered to SBA.”

What is the average loan amount that is being requested?

“We are seeing deals over the last six months that average between $1 million-$2 million. That includes all the loans that go through our TORCH [Small Business Lending] program that specializes in loans of $350,000 or less.”

How often does your team sign off on a new SBA loan? Has that frequency changed in recent weeks?

“We are approving about 10 new loans per month, and that approval volume is increasing.”

How do you see this situation playing out in the upcoming months? When do you think the waters will calm?

“I think that we will see a pretty stable level of activity for the rest of this calendar year. My anticipation is that the rate tightening cycle will stop in the second half of the year, which will go a long way to calming the waters. Once that happens, some risk will be alleviated for the small business person.

At that point, the next significant variable is how the larger and regional banks react to the chances of a recession. If a recession is expected, commercial underwriting tightens at levels commensurate with how deep the banks anticipate it will be. Traditionally, SBA activity increases as conventional credit criteria tightens.”