Houston SBA Loans (Blog Post)
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Abstract
A blog post investigating the lending habits of the Houston SBA office.
Blog Post
The Small Business Administration, founded in 1953, states its mission as "to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation." One of the key ways it does this is through start-up loans. The biggest program is the 7(a) Loan Guarantee, which guarantees as much as 85% of loans up to $150,000 and 75% of loans of more than $150,000 up to $5,000,000.
7(a) loan applications are made to and funded by SBA accredited partners. When a business applies for an SBA loan, it is actually applying for a commercial loan, structured according to SBA requirements. The lender is largely protected by the SBA guarantee. A small business pays between 7.5%-9.5% interest on their loan. This interest is split between: banks, which can charge no more than 2.75% on top of the prime rate, and a SBA guarantee fee ranging between 2%-3.75%.
While the 7(a) loan program is highly utilized and important, finding data on the program is difficult. Take for example the local Houston SBA office, which provides data by loan amount and lender for the 7(a) program but does not specify if the amount is the loan amount approved or the loan amount disbursed. Considering many of their national office records specify that loans are recorded by the amount approved, one may assume that these numbers at the local level reflect that practice. Within that assumption however, where are the records for the amounts actually disbursed? This would not be a major concern except that a Congressional Research Service report found that the amount of 7(a) loans approved annually is typically about 10% to 15% higher than the amount disbursed.
Beyond just a clear record of dispersal, there are no records for the number of loans issued by lender, just merely the total amount. This makes tracking the number of actual businesses receiving loans very difficult, and make the small business environment seemingly less transparent. When examining the available records, some further interesting businesses practices may be noted. Across the first 6 months of fiscal year 2016, ranging from October 2015 to March 2016, the total approved loan amounts have increased 370% from $7,448,000 to $27,581,100. Two banks have ranked as the single biggest lenders, Texas Advantage Community Bank in October and November of 2015 and BBVA Compass across the other four months. Texas Advantage Community Bank, as according to Credio.com ranks at a 73/100, below average for a community level bank. BBVA Compass ranks average for a multinational bank.
While it is difficult to draw any conclusions from this information, what is important to keep in mind is the difficulty in accessibility and the apparent lack of local-level oversight. Further information on the disbursal rates and selection process for lender banks would be ideal, and could help reduce the perceived opacity surrounding the SBA. Perhaps future investigation will reveal more hardened information concerning the practices of the local Houston SBA office and its 7(a) loan practices.
