CEO Insights

Not the weather. 

As I write this, snow is falling, and the temperature is somewhere in the teens. Fahrenheit. I keep my weather app on Celsius because I speak to my mom (who lives overseas) every morning and she always asks how the weather is.

But I digress. 

As many of you know, I am a little obsessed with economics and current affairs, and it has certainly been a task keeping up with all the news and developments as of late! 

So first, the news. On Thursday February 20th, the Senate confirmed former Sen. Kelly Loeffler, R-Ga., as Administrator of the Small Business Administration (SBA). We are delighted to have her as the leader of such an important agency of the federal government and, speaking on behalf of the sixty of us working at Gulf Coast Small Business Lending, we look forward to continuing our work with SBA’s D.C. headquarters and regional SBA (and USDA) offices across the country.

Now back to the heat. Of all the economic news out there, I am currently fixated on inflation. A quick definition first: inflation refers to the rate of change (increase) of the price of a basket of goods, not the actual level. And the most popular measure of inflation is the Consumer Price Index (“CPI”) which is published monthly and closely followed by numerous constituents. 

After appearing to have been tamed last year, inflation is rearing its head again. Last week, CPI clocked in at a monthly increase of 0.5%, 3 percent annualized. The Federal Reserve seeks to achieve inflation at the rate of 2 percent over the longer run as measured by the annual change in the price index for personal consumption expenditures. Many products have risen in price; for example, the price of a dozen eggs has doubled since a year ago. 

The most immediate implication, one that is especially important to our borrowers (and, therefore, to us), is that interest rates will not be further reduced in the short term. I am anticipating, at most, one small cut (0.25%) in 2025 and, perhaps, two in 2026.  

Without question, inflation is the most corrosive force in economics, eroding purchasing power and destroying savings. The Fed understands that and many years ago made inflation containment one of its two imperatives (the other being unemployment). I have full faith in the Fed’s ability to bring down inflation again, probably in a “soft-landing” manner, and hope that the close historical relationship with Treasury continues. 

But it will take time. Our economy is a big ship, generally headed in the right direction, and now in need of a course correction. As we anticipate the return to normal price levels, our Gulf Coast Small Business Lending team continues to support America’s small businesses by providing SBA loans to acquire, grow, refinance old debt, and invest in the future. 

If you’d like to discuss your borrowing needs or talk about the economy – please reach out. You can find contact information for our experienced team of SBA lending professionals here: https://gulfcoastsba.com/our-people/.

This past Thursday morning was a cold one (by Texas standards). I was finishing my first coffee, watching the snow coming down, and catching up on the news. A headline from a week ago and from a respected news outlet captured my attention: “The Incredible, World-Altering ‘Black Swan’ Events That Could Upend Life in 2025.” I can’t resist headlines like that and after refreshing my cup I immersed myself in the article.  

By definition, Black Swans are near-impossible to predict or prepare for and fixating on them leads to inaction.  So, let’s not dwell, but if you’re interested, Google the article and give me a call to share impressions.

I am certain about one thing and doing something(s) about it.  The next few years are bringing increased volatility.  Quick definition first (mine):  volatility is the degree of deviation from historical norms or an accepted standard. While generally viewed as problematic, volatility has as many ups as downs, and presents great opportunities as well; just watch out for bubbles!

I expect to see increased volatility across the board, manifested by increased financing activity. Which is where, as a lender, we come in.  To prepare we are undertaking three major initiatives:

First, we continue to increase our capacity to do more and bigger loans.  As part of a successful bank, capital has never been an issue for us and we continue to build up the team, improve our processes, and invest in technology to provide the best service we can.  We are also hopeful that both the U.S. SBA and USDA will up our loan limits on SBA 7a loans and USDA B&I loans.

Second, we are offering more financing solutions.  We’ve added lines of credit in addition to the traditional SBA 7a term loan product that Gulf Coast Small Business Lending has historically always offered.  We’re also offering USDA B&I loans, SBA 504 loans, and even conventional term debt.  And that’s not all!  Our SBA team also routinely collaborates with our sister companies at the bank to offer asset-based lending, factoring, and equipment finance.

Finally, we are shying away from things we consider “bubbly” or “highly speculative.”  We were never big on any of those, but the next few years we will see many more crypto-this, AI-that, and we simply don’t have the temperament for those heady deals.       

In summary, I am excited about the continued strength of the economy and the ongoing role of small businesses within it.  I expect the next few years to be our most exciting ones and we are ready for them!

“Foot on the accelerator with hands firmly gripping the steering wheel.”

If you have a deal to discuss or simply want to chat about volatility (or any other economic issue), please reach out.  You’ll find a listing of our sales team along with their contact information here:  https://gulfcoastsba.com/our-people/ or you can find me on LinkedIn here: https://www.linkedin.com/in/nimi-natan/

The November edition of my blog is late, and here we are into December with Christmas lights up and Mariah Carey seemingly everywhere. The reason for my tardiness isn’t being overly lazy or busy; I was merely awaiting the appointment of a new US SBA administrator which, at the time of this writing (early morning Sunday, December 1), hasn’t arrived.

The topic of this month’s blog is “The Next Four Years,” and I will qualify it by saying that who the President name as SBA Administrator could change the outlook.  Which is actually what the headline should be: “Operating in an Uncertain Environment.”

There is a time and a place to talk politics, and this is neither.  But as a large-ish SBA lender, we can’t pretend politics aren’t on our minds. It is.  Constantly.  The SBA was created on July 30, 1953, by President Eisenhower with the signing of the Small Business Act.  Since then, with wide support among both political parties and all government branches, the SBA has been a critical contributor to the creation and support of small businesses and their employees.  So, it is only natural to ask what the outlook for SBA is with a new administration.

I don’t know.  

It is more difficult than ever to guess (never mind predict) what the various factions in the Executive and Legislative branches are thinking and what actions they will try to take.  The SBA was never as important and effective as it was during Trump’s first term, working with Congress, Treasury and the Fed to deliver emergency funds through PPP and EIDL and I am hopeful that it will continue to do that for the next four years (and beyond).

But as any business owner knows, planning, even in the time of uncertainty is critical. With that in mind, here are my expectations:

1. The economy will continue to roar.  As it has done in the past few quarters, with unemployment low, inflation in check, and solid GDP growth, the new administration doesn’t have to try very hard to maintain the current trajectory.  If deregulation takes effect, taxes are cut, and we step back from some politically-driven policies, the economy has the potential to grow even faster.
2. Price inflation may rear its head again.  With the combination of low unemployment, solid growth and the continued rise in asset values (think home prices and their impact on rent), it won’t take much to raise the CPI above comfortable levels.  I am especially wary of the potential impact of misguided tariff and immigration policies.  I am encouraged by the appointment of Bessent to Treasury and continued stability at the Fed.
3. The crypto bubble.  Putting aside my opinion on crypto (hint: it’s a scam), it is behaving like a bubble.  And you know what happens to bubbles.  To the extent that some of our customers are holding crypto on their balance sheets or playing in that vast casino, we consider the unknown prospects of the currency when evaluating a potential loan.  On a macro-level, the larger crypto gets the more chance we have for contagion when the bubble bursts.
4. I’ll be surprised.  I am fully expecting to wake up to news and scratch my head at least once or twice a month.  My plans take volatility into consideration by applying healthy safety margins to everything I do.

In summary, I am excited about the continued strength of the economy and the ongoing role of small businesses within it.  I am hopeful that during Trump’s second term and with a supportive Congress, the SBA program will continue to thrive.  Finally, I am wary of disruptions and distractions.

“Foot on the accelerator with both hands firmly gripping the steering wheel.”  

When you or your clients are considering an SBA loan, please reach out to our experienced team of SBA lending professionals.  You can find their contact information here:  https://gulfcoastsba.com/our-people/.  We are always monitoring the latest developments in SBA lending and will work with you and your clients to put together the most advantageous deal structure in the current environment.

Some of you have known me since college (looking at you, Skip) and might remember my old Jeep; it wasn’t the best car I owned but it was by far my most fun car. I traded it in for more practical car before I moved to Boston. Or was it Rochester? Two years ago, I found and restored a near-identical Jeep (’78 CJ5 with a 3-speed, 304ci AMC motor). Uncomfortable, loud, smelly, and unsafe but it passed inspection and is almost as much fun as the old one.

One thought crosses my mind when I walk towards it in the morning: “Please start…”

Which brings me to the SBA 7(a) program and my experience at Gulf Coast Small Business Lending. SBA 7(a) loans, as well as other products supported by the agency, are the ultimate “Please Start” loans.

The 7(a) loan program is the flagship product of the US Small Business Administration (SBA) and derives its name from Section 7(a) of the Small Business Act of 1953 which authorizes the SBA to guarantee business loans to American small businesses. The Act provides loan guarantees to encourage lenders like Gulf Coast Small Business Lending to provide loans to small businesses “that might not otherwise obtain financing on reasonable terms and conditions.” Annually, tens of thousands of businesses and hundreds of thousands of their employees are supported by the program.

The SBA 7(a) program is especially useful in four situations:

1. Business acquisitions without real estate – the program does not require hard assets as collateral and as such is perfect for loans involving light or no collateral which are often the cases in business acquisitions. Not all banks are interested in these loans, especially once they cross the $1 million mark, but we love them!
   
2. Working Capital – Traditional lines of credit are common but require the assignment of assets such as inventory and accounts receivable. Many businesses, especially startups, do not possess these, and SBA allows lenders like us to provide both lump-sum disbursements for working capital and revolving lines of credit not linked to current assets. We especially like to offer these to supplement the traditional SBA 7(a) term loan to provide additional liquidity, as needed, to our borrowers.
   
3. Startups – Every entrepreneur would tell you that what’s holding them back the most from starting a business is lack of financing. And most bankers would tell you that they don’t finance startups. We love startups and support them every day with SBA 7(a) term loans and working capital loan products.
   
4. Franchises – another often ignored and important part of the economy is franchising. Few segments scare lenders, both conventional and SBA, as much as franchising. We, on the other hand, love franchised operations, including startups!

Thankfully, my Jeep always starts. Not easily on cold days and it occasionally needs a little help, but it starts. In much the same way, Gulf Coast Small Business Lending is prepared to help you start on your next venture, whether it’s an acquisition or a startup. Please reach out to our experienced team of SBA professionals to discuss your options. Let’s get started!

Disclaimer:  Not a political post.

I enjoy writing this monthly blog post; in this crazy hectic environment, it forces me to sit down, focus on a topic that’s important to me, and concisely transcribe the headlines.

Today I dive into possibly the most important topic since this blog started and that is last week’s interest rate cut by the Fed.

By way of background:  Starting in March 2020 the US Federal Reserve quickly and steadily increased its target interest rates (Fed Funds) to thwart inflation caused by COVID-related supply-chain and labor-market disruptions.  Four years later they appear to have met their inflation-rate goal and subsequently took the first step to restore a moderate rate regime, starting with a decrease of 50bps (0.5%), taking the target rate down to 4.75-5%. Additionally, they signaled their plans to reduce the rate by another 50bps by the end of the year, another 100bps in 2025 and finally 50bps more in 2026.  Core inflation is coming in at 2.6% for 2024 and projected to be around 2.2% in 2025.  GDP is expected to grow at about 2% next year and unemployment will likely stay in the 4-4.5% range.

By all measures (see disclaimer above), this is the result of a masterfully executed plan orchestrated by Jerome Powell and Janet Yellen.  It is the first time since the ‘90s that inflation has been tamed without putting the economy into a recession.  

The immediate tangible impact is lower interest rates and monthly payments to our SBA borrowers, present and future.  The rates on SBA 7a loans are tied to the prime rate, which is now lower by 0.5%. It represents a significant savings which business owners can use to fund growth, invest in working capital, acquire real estate and pay down debt.  

Even more important are the less tangible (but real) psychological aspects of the move.  Three things were on business owners’ minds over the past couple of years:  inflation, tight labor market, and high interest rates.  With this week’s move, the Fed has broadcasted that these factors are all being addressed, without an economic slowdown.   

This has me looking into the rest of the year and also into the next couple of years.  We are seeing a significant uptick in activity (meaning SBA loan requests) largely due to optimism and our own marketing efforts and partly aided by other lenders having pulled back or exited SBA lending.  The interest rate environment is giving me additional confidence to invest, and my team and I are looking forward to meeting you!  Let’s talk!  You can find a listing of our nationwide SBA Business Development Officers here: https://gulfcoastsba.com/our-people/. 

Last month I headed to the Eastern Shore of Maryland, where I grew up.  I ran into the son of an old friend of my dad, Frank, and over a cup of coffee reminisced about how my dad became a business owner.  

My dad, a chicken-expert of sorts, immigrated to the US and settled in Salisbury, Maryland where he worked for Purdue Farms.  But his dream was to become a restaurant owner, and while working at Purdue he saved enough for a future downpayment.  An opportunity came knocking when the local Bonanza franchisee (remember Bonanza?) looked to sell one of his locations.  

We couldn’t remember the amounts, but it was a sizable deal for my dad; he couldn’t buy it with his life savings.  Enter Frank. Frank was the manager of the Salisbury branch of Peninsula Bank and he and my dad became friends at the local tennis club. First over steak dinner (at Bonanza!), then the next day at his office, and over the weekend at his home, at Mister Donut, and between sets at the park, Frank (very) patiently explained the process of securing an SBA loan.  He also introduced my dad to an accountant and a lawyer and went on to underwrite a loan.

Fast forward 8 weeks, my dad became the owner of the Salisbury Bonanza.  Four years later he was a multi-unit owner/operator with locations in Ocean City, Cambridge, and Dover, Delaware.  

Old-school banking.

As our shop embraces more and more technology, as most if not all communication is carried out by emails, texts, and the occasional (VOIP) call, I keep reminding my teammates the importance of a personal connection. There are tens of thousands of entrepreneurs like my dad, who have never borrowed and have not experienced the complexity and intricacies of an SBA loan.  We, on the other hand, are doing it day-in-day-out. It is our duty to bridge the knowledge gap. We’re the 2024 version of Frank.

So don’t hesitate to pick up the phone or arrange to meet us in person (we are in over 20 cities around the country).  Let’s talk.  Contact information for our Business Development Officers can be found here: https://gulfcoastsba.com/our-people/ 

When speaking with borrowers and intermediaries, one of the inevitable questions is “why should I consider an SBA 7a loan? What makes it better than a conventional loan?”

I quickly rattle off what an SBA 7a is, then list the differences, which I’d like to summarize here.  A Google search will yield similar results:

What is an SBA 7a loan?  Offered by almost 4,000 banks, this loan is the flagship of the US Small Business Administration lending effort supporting owner/operators.  In its essence, the 7a is a term loan, typically 10-25 years, fully amortizing, priced at a spread over prime rate.  There is no minimum borrowing, and the loans are capped at $5,000,000.  The loans are used to acquire or expand business, to buy real estate, to refinance debt and pretty much any use (except cashing out). The loan is offered by banks, which are in turn provided a repayment guarantee from the US SBA.

Why chose an US SBA 7a loan over a conventional loan?  Foremost and realistically, there is little overlap in availability; we see very few loans that would qualify for a conventional bank loan mostly due to lack of collateral.  Second, US SBA 7a loans (not true for all lenders, true for us) do not require real estate or other “hard assets.” We are required to place liens on assets we finance but are permitted to provide loans to businesses with no assets.  Third, advance rates are higher, and we often do 90% LTV loans. The SBA recently liberalized its policy making it easier to lower the down-payment with cooperative sellers who are willing to remain in some ownership capacity.  Fourth, with the right lender, the SBA 7a is suited for riskier, more complicated uses such as startups, multi-unit franchise businesses, consulting and others.

But probably the most important difference is the level of expertise and attention you get from SBA lenders like us.  That’s all we do. We are experts, we know what it takes to close an SBA loan and we work hard to support your plans (and dreams).  Let’s talk!  Our team of experienced SBA professionals is ready to assist and will gladly answer any additional questions you might have about SBA loans.