Thanks To This Entrepreneur Small Business Loans Could Be Easier To Get

Today on Forbes, small business loans could be easier to get thanks to this entrepreneur. Small business administration loans are a great deal. They are federally guaranteed, profitable for banks, and a boon to both entrepreneurs and the overall economy. Some 20% of the American labor force is employed by companies with fewer than 20 employees. But bankers hate to make these loans. There are 9,000 federally insured banks and credit unions in the U.S., yet only 1,452 of them made any 7A loans, as they are known in the jargon, in 2024. The long-term trend is bad, too. Ignoring a spike during the pandemic, the overall number of SBA lenders is down 9% from 2017. So what's going on? To hear small banks tell it, one big reason they don't make 7A loans is the expertise and staff needed to navigate and document compliance with SBA rules. Mess up that complicated paperwork, and both the bank and the borrower can suffer delays or even put the SBA guarantee at risk. Enter Chris Hearn, who is 52 years old and a big name in small business lending. He's betting that small banks want back in on the SBA guarantee, so long as someone else handles the red tape. In January, he launched Phoenix Lender Services, a 40-person team that bills itself as a full-service shop that will handle underwriting, servicing, and liquidations, so community lenders can offer SBA loans without building an entire back office or risking a ruinous mistake. Hearn, who now operates out of Winter Park, Florida, first got involved in SBA lending in the 1990s, when he started his business career at the old GE Capital. In 2015, he founded Fountainhead Commercial Capital, a non-bank lender, which made more than $28 billion in small business loans, most of them SBA-guaranteed. Fountainhead has been winding down, and Hearn has essentially moved his lending team and, after a competitive bidding process, all of its remaining $200 million SBA 7A loan portfolio to Phoenix, which was formed as a subsidiary of Community Bank Shares, Inc., a small bank holding company in La Grange, Georgia. Hearn joined Community Bank Shares last April and became its second-largest shareholder in November. Hearn is certainly an enthusiastic salesman for SBA loans. He says, quote, "...you know how many companies in America had an SBA loan at one point? Apple, FedEx, Oracle, Outback, you just go down the list." But these days, he complains, small businesses that could benefit from SBA loans can't necessarily get them from the community banks they normally do business with. While a few big banks stepped up their SBA lending during COVID and were heavily involved in distributing hundreds of billions in Paycheck Protection Program forgivable loans, they still punch below their weight when it comes to SBA lending. Hearn says, quote, "...they don't want to sully themselves with a small business owner." JPMorgan Chase, the nation's largest bank, was only the sixth-largest SBA 7A lender last year. The SBA's 7A program was created back in 1953, along with the agency itself. Currently, it guarantees up to 75% of $5 million in loans to an entrepreneur to build or buy a business. Moreover, thanks to a recent SBA rule interpretation, an entrepreneur can now borrow up to $5 million for each industry sector he enters. Previously, the limit was $5 million per borrower. The idea is that with the guarantee, banks can make loans that aren't fully collateralized, meaning they can lend on projected cash flow, giving more entrepreneurs a chance to get the funds they need to grow and succeed. Repayment terms can stretch up to 25 years, whereas conventional small business bank loans typically max out at 10 years. Last year, 70,242 loans worth $31.1 billion were approved under the 7A program. Hearn's pitch to lenders is simple. Outsource SBA loan servicing and get instant expertise without all the overhead. Phoenix's fees vary depending on how much servicing a bank wants, but typically range from 1% to 3% of the loan amount, Hearn says. For full coverage, check out Brandon Kokodin's piece on Forbes.com. This is Kieran Meadows from Forbes. Thanks for tuning in.