Commercial Credit, Small Business Credit

As small businesses struggle amidst the shutdown-induced SBA program closure, they may have other options.

The government shutdown has had a ripple effect across the country, and not just for government workers. The small business borrowers of Main Street America are feeling those effects keenly, particularly with the closure of the SBA loan program. The longer this goes on, the longer these companies put their growth plans on hold, which ultimately stalls overall economic growth. A bleak picture—but one which presents an opportunity for conventional lenders to step in and fill the void currently left by the SBA.

Most SBA lenders saw the shutdown coming and prepared by pre-applying through the preferred lenders program. Their foresight kept their pipelines filled through the next month—meaning that the biggest lenders could generate enough loan production in

December 2018 to last through end of January. However, once those pre-applied loans dry up, no further lending can go through SBA programs.

Banks with a credit portfolio of SBA loans that can generate sufficient income to fund operations will be fine as the shutdown continues. Figure 1 shows the percentage of SBA loans that could be booked as regular loans, according to data from PayNet, a leading commercial lending data and analytics firm. If banks regularly sell loans, they will need to either determine how they can mitigate costs—or hope that the shutdown ends before it comes to that.

As for small businesses, the credit gap—or struggle to access credit from banks—will only widen further during the shutdown, with about $23 billion in credit at risk.

Research shows this could cost the economy over $50 billion in lost GDP for 2019.

Yet there may be a light at the end of the tunnel. While lenders rely on the SBA to limit the risk of lending to small businesses, there are a growing number of alternatives to those loans. PayNet provides lenders with data, analytics, and insights to help them make loans faster and easier— without having to rely on the security net of the SBA.


Figure 1: SBA Score Distribution and Bank Historical Default Rates

In fact, PayNet estimates that about 72% of small businesses that apply through the SBA credit market could safely gain access to credit through conventional lending programs (e.g., community banks, regional banks, and online lenders). This could allow approximately $16.5 billion in credit to flow to small businesses if the shutdown continues.

Thanks to advanced technology and digital banking, well-positioned lenders have an opportunity to step in and pick up the small business loans that are currently in limbo due to the SBA shutdown. PayNet is encouraging lenders to look at the current market with a fresh perspective and consider the long-term possibilities supporting SBA loan borrowers.

Contact Us to learn more about how lenders can take action during the shutdown.