South End Capital, a division of Stearns Bank in St. Cloud, Minnesota, is rolling out a nationwide Small Business Administration small-dollar Express loan product, promising to fund loans up to $25,000 within days, perhaps hours.
While South End doesn't guarantee same-day funding, it says a streamlined application process allows it to approve and fund loans more quickly than many SBA lenders. South End funded its first loan under the program in less than 7 days, according to President Noah Grayson.
In many cases the timeline from application to funding will be determined by how rapidly borrowers complete the modest documentation requirements, Grayson added.
Borrowers complete a few brief forms, with requirements for collateral, tax returns, bank statements and financials often waived, Grayson said. The low-doc process is made possible by conservative qualifying parameters, including sponsor credit scores of 725 or higher and evidence of four years of business operations, Grayson said.
South End has been involved in SBA lending for most of its 13-year history, while the $2.3 billion-asset Stearns Bank is one of the top 7(a) lenders in the country. Through the first 11 months of the government's 2022 fiscal year, which began Oct. 1, Stearns reported closing 89 7(a) loans for $62.5 million.
"We have a strong background in SBA lending," Grayson said. "We're very experienced with it. SBA Express is the path of least resistance to get competitively priced capital to businesses."
Under its Express program, SBA allows qualified lenders to make loans up to $500,000 using in-house loan analyses, procedures and documentation requirements. In exchange, the agency limits its guarantee to 50%, rather than the typical 75%, for 7(a) loans. Express is a component of SBA's flagship 7(a) loan guarantee program.
Shanika Sheppard needed funding to turn her Italian ice food cart into a larger business selling Philly cheesesteaks and other comfort foods. She's one of more than 520 small-business owners who’ve received loans of $150,000 or less under the bank's Lift Local program.
According to Grayson, South End set the threshold for its Express loans at $25,000 because documentation requirements above that level grow progressively more stringent, even within the streamlined Express framework. Funding in hours or even in a few days gets tougher with larger loans, and "providing business working capital in as accelerated a time frame as possible is one of our primary objectives for this program," Grayson said.
South End's Express product is one of several recent small-dollar SBA lending initiatives. In July, LoanBud, a subsidiary of the $921.4 million-asset BayFirst Financial in St. Petersburg, Florida,
BayFirst and LoanBud have seen BOLT originations increase significantly in just a few months, from 57 loans for $7.5 million in June to 104 loans for $13.7 million in July to 196 loans for $23 million in August.
Industrywide, loans of $150,000 or less made up about 6% of the approximately $23 billion in 7(a) loans closed in the first 11 months of fiscal 2022, according to SBA. That's up from the same period in fiscal 2021, when loans of $150,000 or less amounted to 4% of 7(a) production.
At South End, Grayson said several referral partners have expressed what Grayson described as significant interest in the just-launched Express program, as have a number of new partners, who began submitting loans after viewing the inaugural press release earlier this week, he added.
"Some large industry peers were instantly intrigued," Grayson said.
Once South End builds a portfolio large enough to evaluate the Express loans' performance, Grayson said he and his team would consider increasing the $25,000 loan-size cap and relaxing the qualifying parameters. "Our hope is to be able to offer fast and affordable SBA Express working capital to as many businesses as possible, but in a responsible, risk-averse way," Grayson said.
