The small bucks convention commercial lenders underwriting method


Borrowing a page from the PPP playbook, a Florida community bank — BayFirst Financial — has begun offering Small Business Administration loans to start-up businesses based on their gross income.

The Paycheck Protection Program moved in a similar direction in March 2021, allowing loan amount calculations based on gross income, rather than net income, in a bid to push more funding to small businesses. , including freelancers, sole proprietors and independent contractors at the height of the pandemic.

The policy change galvanized the program, helping to generate 6.7 million loans for $277.7 billion between mid-February and May 4 last year, when program funds ran out. In contrast, the SBA, which managed the PPP, approved 5.2 million loans under the program in 2020.

BayFirst is also aiming to bolster its small business lending with a new program called BOLT that aims to make credit available relatively quickly.

“We’re just leveraging our platform to give small businesses what they need right now, access to low-value loans,” said Thomas Zernick, president of the BayFirst National Bank unit of BayFirst. . “Now that [Economic Injury Disaster Loans] are over, businesses have probably spent that money, there’s no more PPP money, we’re seeing that small businesses have an appetite for capital to help them get started again.”

Thomas Zernick, Bay First

BOLT loans, which are available nationwide and capped at $150,000, last for 10 years. They’re prime-priced plus 2.75% and can be prequalified within hours with the goal of funding in seven to 10 days, according to BayFirst, a $921 million asset.

The bank launched BOLT at the end of the second quarter with almost immediate impact. As of June 30, BayFirst had issued 57 BOLT loans for $7.5 million. As of July 21, the company had reported 296 other BOLT loans totaling $39 million either closed or active.

“We continue to feel that businesses need access to some of these smaller loans, whether it’s $50,000, $75,000, or $100,000,” Zernick said. “We are seeing a huge demand for [BOLT] on the market. … What would limit it is simply the staff, our bandwidth and our processing capacity. We are obviously hiring in our SBA division right now. We are delighted to bring in new teams.”

“We’re not really competing with other SBA banks” with BOLT, Zernick added. “We’re competing with non-bank lenders who are giving merchant cash advances, who are lending money to these businesses that desperately need $75,000 or $100,000 to help them grow.”

Although observers have said using gross income to determine loan amounts has become more common since the pandemic, it remains unusual in the private sector.

According to Kristen Conti, owner of real estate brokerage boutique Peacock Premier Properties in Englewood, Florida, many SBA lenders “won’t use gross income because it doesn’t show the borrower’s actual ability to make loan payments. “.

Indeed, Noah Grayson, president of South End Capital, a $2.2 billion asset-based Stearns Bank unit in St. Cloud, Minnesota, called gross income loans instead of business income. company or earnings before interest, taxes, depreciation and amortization (EBITDA) “an unusual practice in my view.”

But Grayson and Conti each noted that the SBA gives lenders more flexibility in underwriting loans under $350,000, especially if the borrower’s credit score is higher.

With smaller loans, “a preferred SBA lender may rely on other data points in addition to net income, such as [small-business credit scores]time spent in business, business credit and repayment history — and gross income — to determine eligibility,” Grayson said.

BayFirst requires that businesses applying for a BOLT loan have been in business for at least two years and that the owner has a minimum FICO score of 680. “You still need to have good personal credit, you need to have a good business credit score, you must adhere to the parameters of the program,” Zernick said.

BayFirst has been an SBA Preferred Lender for several years. The company had one of its best quarters in the second quarter, with a total of $90 million in SBA loans, including a record $47 million in the month of June, Zelnick said. For BayFirst, SBA lending has become increasingly important since mortgage banking, its other major line of business, has been slowed by rising interest rates.

“When we started residential lending in 2017, we knew business was volatile,” Zelnick said. “It comes and goes with the tariffs.” While SBA originations in the second quarter jumped 90% year over year, residential loan originations, which totaled $306 million, were down 48%.

At the same time, BayFirst hopes to develop deeper relationships with select BOLT customers.

“There’s nothing that makes us happier than taking someone who borrowed $200,000 from us a few years ago and helping them buy a building, helping them buy another business” , Zelnick said.

Although Zelnick said many lenders have moved away from smaller loans, some have embraced the industry in recent months. The $178 billion asset of Huntington Bancshares in Columbus, Ohio, has pledged $100 billion to make small SBA loans women, minority and veteran-owned businesses through its Lift Local program.


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