CEO Insights

I hope this letter finds you well. 

We need to talk. It looks like you are planning to stick around, and I would like to provide a list of wishes that are necessary for us to get along, even thrive together.  

As a lender, specifically an SBA lender, I’d like you to:

Help potential borrowers and referral sources find us.  There are over 4,000 of us, each with our own quirks, likes and dislikes, underwriting standards, regulatory regimes, specializations, loan terms, and a hundred more unique features.  The same with borrowers: each is an individual with her or his needs, experience and financial wherewithal.  The name of the game is “capital access.”  We have capital we wish to invest, and the business owner has uses for capital. It’s as simple as learning about us (lender and borrower) and matching us up.

Improve our productivity.  Doing SBA loans is hard work and some of it is tedious and prone to errors.  We can’t hire and train fast enough to keep up with the demand and are hopeful that you can help us. We are already using you for this and looking for added innovation to make it even better.

Give me insight.  The data is there, lots of it, but it’s sometimes difficult to separate signal from noise and distill it to important trends and insights.  What part of the country has the most need for our capital? Industries?  What makes a good SBA loan? A bad loan? What industries are deserving but underserved.  To be clear, I will never ask you to make decisions for me, but I’d love you to give me insights that allow me to make the right decisions. You’re supposed to be good at it, certainly fast, so let’s get to work. 

Earn my trust. Let’s be honest; I don’t trust you very much.  I question your answers, especially when you tell me how smart I am (I am not, and I am self-aware).  And those hallucinations?!? C’mon, get your act together.  And are you sure the proprietary data I input isn’t used for model training or even worse, shared with others?

Don’t be an asshole.  Scams, fake news, water and energy consumption, noisy data-centers, opaque pricing, enabling bad actors, intellectual property theft, the list goes on. You’re important, you’re useful (not the Tik Tok part); now let’s work on your ethics.  

This is a fairly comprehensive list and I understand it might take a little bit of time to implement every single suggestion.  In the meantime, I and my team of experienced SBA 7(a) lending professionals remain available to talk about deals.  In fact, that will never change.  You can’t get rid of the human element although you can certainly enhance the overall process.  Anyone reading this who needs or wishes to interact with a live human, you can find a listing of our experienced SBA professionals here:  https://gulfcoastsba.com/our-people/.  We look forward to being of assistance.

I was working on another blog post one recent Saturday morning, writing about the food industry, farm-to-table, how much I love it and how much I’d like to make more SBA loans to its participants. But then a good friend called for some advice on buying a camera. Those of you who know me know how passionate (and opinionated) I am about the craft.  I’ve been shooting seriously for a long time, ever since my parents gave me my first good camera (details at the end of this essay, for you fellow photographers). Because of this conversation, my original blog concept has been bumped to June so watch for it in a few weeks. 

After I dispensed the advice (Nikon Z6iii), I spent another hour or two writing down all the cameras I owned since that first one, those I loved and those I hated, and tried to find the common thread.  It wasn’t the quality of the images I made, the cost, the features or the prestige.  It came down to one attribute: reliability.  It had to work in all conditions, take abuse, and never fail.  

Later that day, after reflecting on it further, I realized that reliability is a core factor in how I evaluate things in both my personal and professional life. That led me to the topic of this blog: what does it mean to be a reliable lender?  Here are the qualities I identified. I recommend using this checklist when evaluating your next loan.

1. Financial Stability:  This is the absolute baseline. A reliable lender must be a safe fortress.  I am seeing way too many cases where banks over-extend themselves when issuing term-sheets, only to back out of the deals when it’s time to fund the loans or changing the terms in the last minute (e.g. require higher equity injection, raising rates, etc.) because of their own financial condition.
2. Regulatory Credibility:  As critical as financial stability is the lender’s standing with the regulatory bodies.  To protect the public in general and borrowers in particular, bank-owned SBA lenders like Gulf Coast Small Business Lending are regulated by multiple bodies: state bank regulators, FDIC, and the US SBA itself.  We run the cleanest shop in the business, and we urge borrowers to scrutinize their potential funding sources. Avoid non-regulated lenders.
3. Absolute Transparency:  The best lenders don’t rely on fine print or confusing jargon to make a living.  Our loan terms are written in plain English and include all costs, rates, fees and conditions to closing, and when we issue a term sheet, we stick to it.  No bait and switch.
4. Ethical Underpinning: Believe it or not, there are “bad actors” in our industry.  We strive to price our loans fairly and structure them responsibly.  We partner with borrowers for many years, as many as 25 in some instances, and mutual trust is paramount. We take this seriously and, as a result, provide full transparency upfront. In short, we do what we say we will do. Finding a way to say YES isn’t just a tagline, it is a way of life and our approach to every opportunity.  If there is a way to say YES, we’ll do it.
5. Operational Excellence:  From the very first contact all the way to loan servicing and final payoff, a lender must have streamlined processes and up-to-date technology. Core to our operating philosophy are well-trained, experienced industry professionals who make every phase of the relationship fast and efficient.

Considering a loan?  Give us a try by contacting any of our SBA lending professionals (or me) to get the ball rolling.  You’ll find a listing of them here: https://gulfcoastsba.com/our-people/.  We are finding a way to say YES!

Back to photography.  My first serious camera, a Bar Mitzva gift from my parents was a Canon FTb. I used it for about ten years and while I don’t shoot film anymore, the camera, nearly fifty years old, is as good as new.  Subsequently, I owned other stellar cameras such as the Nikon FM2, Nikon F5, Nikon D4 and for the past four years, Nikon Z9. Reach out for camera advice…  

As a major, nationwide SBA 7(a) lender, we espouse the program’s power and flexibility.  But let’s face it; it’s a great loan to acquire a business, a building, or a machine, but a little clunky for the day-to-day needs of a business, especially one that’s growing.

I’d like to use my monthly blog space to talk about the features of a term loan, focusing on the SBA 7(a) loan program, what it’s good for, and where it falls short, then transition to three other types of financing that can complement it.

A term loan is a type of loan that provides a borrower with a lump sum of cash up front, which is then repaid over a set period of time (the “term”) through a fixed or floating interest rate and a specific schedule of payments.  Think of it as a standard mortgage or a car loan but often used by businesses to finance major investments like equipment and real estate.  The SBA 7(a) is a term loan, typically repaid over a ten- or twenty-five-year term with monthly payments covering both interest and principal.  The advantages of an 7(a) loan when compared to conventional term loan is higher advance rates (so, lower down payment), longer repayment terms (also called “amortization period”), and (from lenders like us), the reliance on cash flow rather than collateral, making it the perfect loan to acquire a business.  

However, the needs of a business rarely stop with major investments. In fact, the success of a business is as dependent on how it manages cash flow than it is on the more significant capital outlays.  Here is an example: a distribution business receives a major order from a retailer and needs cash to buy inventory.  And another: a staffing business lands a lucrative contract with a reputable client, but with 90-day payment terms. It pays its employees every two weeks, generating a significant shortfall in cash. 

To address these needs, three forms of loans come to mind.  In no particular order:

A revolving line of credit (a “revolver”) is a flexible financing arrangement that allows the business owner to borrow money, repay it, and borrow it again up to a pre-approved limit.  Unlike a term loan (where you get one lump sum and the deal is done once it’s paid), a revolving line stays open as long as you are in good standing and may be renewed periodically.  Most revolvers are based on a borrowing-base formula, for example 80% of account receivables and 60% of inventory, but some, like the ones we issue, are unsecured and don’t require a borrowing-base; very similar to a credit card. 

Factoring (also known as accounts receivable factoring) is a financial transaction where a business sells its unpaid invoices to a third party (called a factor) at a discount in exchange for immediate cash. Instead of waiting 30, 60, or 90 days for customers to pay their bills, the business gets most of the money right away to use for its daily operations.  Factoring is an important financial instrument in many industries such as distribution, staffing, and transportation.  As an FYI, Gulf Coast Small Business Lending has a sister company that provides factoring.

Finally, the more exotic purchase-order or trade finance.  Use case: a distributor receives a large order from a retailer and must import a container of goods from overseas. The manufacturer requires payment before loading the container.  The revolver isn’t applicable because in general lenders don’t advance against inventory while it’s being transported.  It also doesn’t qualify to be factored because an invoice is not issued until the ultimate customer takes possession, which can be weeks after the order has been placed.  Enter purchase-order finance.  A handful of lenders advance the full amount of the purchase order to bridge the need until it converts to an invoice.  When the goods clear customs and ship to the customer, the advance is either termed (paid off) or converts to a more traditional factor.  Again, Gulf Coast Small Business Lending has a sister company that provides trade finance.

To summarize, it takes more than a term loan to run a business, especially one that’s on a steep growth curve.  There are several borrowing options to finance the working-capital needs of a business.  If you or your clients have a need, our team (and our sister companies) would be happy to assist.  Reach out to one of our experienced team of SBA professionals today.  You can find their contact information here: https://gulfcoastsba.com/our-people/.  

As a follow up to my February 2026 blog post (https://gulfcoastsba.com/the-gilded-cage-the-perils-of-private-credit-for-small-businesses/), which featured an in-depth discussion of the characteristics of a “bad loan,” I would now like to talk about what makes a loan “good.”  Or, more specifically, what makes a loan resilient to economic reality?

Let’s start by describing what “economic reality” really is.  

• First, the immutable economic cycle.  While a healthy economy is on a positive growth trajectory, it is not a straight line, but rather a wavy one with expansions and contractions, peaks and troughs.  Since the ‘70s, the length of the typical cycle has been 8 years (trough to trough), well within the life of a typical term loan. 
• Second, within the general cycle which affects us all, there are always pockets (e.g., industries, geographies, etc.) that defy the general cycle to some degree.  For example, fast-food restaurants are largely resilient to recessions.  
• Third, the dreaded “I-word.” Inflation is a fact of economic life, a side effect of growth and fiscal and monetary policies.  Prolonged inflationary periods (a year or more of 3.5% or more, in my book) are among the most destructive forces societies face.  
• Fourth, interest rates move up and down, affecting everything from the cost of a mortgage to the interest we earn on our saving accounts.  
• And fifth, technological advances.  While critical to productivity gains and economic prosperity, technological advances also create “winners” and “losers.”  For example, the advent of digital photography put companies such as Polaroid, a former employer of mine, out of business.  

There are other important factors, but I think this is a good place to start.

So, what’s a “resilient loan?”  Resilient loans put both the borrower and the lender on the same side of the table: lending is NOT a zero-sum activity; both borrower and lender benefit from a good loan and are hurt by a bad loan.

There are four major components that come together to create a resilient loan: the underlying business, the loan itself, the business owner and the lender.  I will skip discussing the underlying business and its owner for this write-up and come back to them in a future blog.  

The Loan

Two quick disclaimers. First, I am only going to discuss loans to small and medium size businesses (SMBs) and loans ranging from $500,000 to say $12-15 million. In other words, our world.  Second, my predisposition as a conservative lender will show.

• Fixed vs. variable rate: Contrary to common belief, a fixed rate is not safer. Sure, if you locked a rate at 2% you are a genius, but the reality is, we don’t know how high and how low a rate will change over the life of a loan.  Increasing rates in a moderate-inflation world are typically the result of economic prosperity, and while your loan payment goes up, so should your revenue and profitability.  Certainly, in a decreasing rate environment (i.e., now), you don’t want to be locked into a high-interest loan with expensive switching costs.  If your ability to service debt changes from yes to no with a 2% rate change, you are borrowing too much.
• Amortizing vs. balloon: For the benefit of both borrower and lender, an amortizing loan is safer.  The loan payment is higher, but there isn’t the cliff of refinancing to worry about.  Does anyone know what the prevailing interest rates will be in five years?  Seven years? 
• Longest amortization possible: The benefit to the borrower is obvious; lower monthly payments which gives the business more free cash flow to reinvest.  But it also provides better debt-coverage ratio which allows the banker to sleep at night.
• Moderate loan-to-value (LTV) ratio: We often compete on the basis of how much we can lend on any specific project and occasionally lose to lenders who advance more than we are comfortable providing.  From experience spanning decades of lending and investing and closing thousands of loans, the high LTV loans are more likely to experience stress and failure for a host of reasons and to the detriment of both borrower and lender.  What’s moderate: it depends, and largely driven by the debt-coverage ratio, not necessarily by how much equity was initially invested.

The Lender

One disclaimer; I am a lender.

• Smarts: If a lender is too lazy or dumb (yes, there are dumb lenders) and doesn’t take the time to understand the cash-generating abilities of your company, watch out.  They aren’t looking out for you or themselves, just the quick fix that comes from booking a loan.
• Stability: An unstable lender is a careless lender, driven by the need to close loans, not necessarily closing good loans.  You are married to that lender for the duration of the loan; do the research.  
• Dedicated SMB lending team: Entrepreneur-led small and medium businesses have unique needs which must be understood by the lending team.  That team will not only fund the loan, it will also be there with the borrower in tough times.  Banks are mostly interested in deposit relationships; find one that’s foremost interested in lending.
• Regulated: I covered the topic of unregulated loans in last month’s blog which you can find here (https://gulfcoastsba.com/the-gilded-cage-the-perils-of-private-credit-for-small-businesses/).  The takeaway should be to avoid unregulated loans/lenders.

In summary, a resilient loan combines a strong borrower, a robust loan structure, and an experienced lending institution dedicated to small business lending.  

If you are looking for debt capital and would like to discuss how we stack up against these criteria, give our experienced team of professionals a call.  You’ll find their full contact information here: https://gulfcoastsba.com/our-people/.

In the past few weeks, I’ve been running across articles about emerging problems in the “private credit” markets.  In essence, as the economy started exhibiting more strains (inflationary pressures, layoffs, and cratering consumer sentiment), several large businesses that were funded by private credit collapsed and raised the specter of “If you see one cockroach, there are a thousand more you don’t see.”  You should definitely search “TCPC” if the topic interests you.

As a small-business lender, we are as far from Wall Street as it gets, but there are similarities worth exploring.

First, some definitions are necessary.  For this essay, I equate Private Lending with Unregulated Lending and Private Lenders with Unregulated Lenders.  For example, banks are highly regulated, and don’t fall into the Private Lender definition. On the other hand, merchant cash advance companies (“MCAs”), for example, are still largely unregulated and I refer to them as Private Lenders.  

Second, let’s all agree that as traditional banks have tightened lending, private lenders have become go to alternatives for small businesses, and some of them do a good job.  However, while private credit offers speed and flexibility, and in some cases is the loan-of-last-resort, its “bespoke” nature often masks predatory costs and control mechanisms that can suffocate small businesses.

What is the cost of the relative ease for accessing private debt, a/k/a “hard money?”

• While lenders often disguise the actual cost of private debt, it is significantly more expensive than bank debt, often equating to up to 20% or more APR.
• Origination fees (2%–5%) and the danger of Payment-in-Kind (PIK) features, which allow interest to roll into the principal, leading to a “debt snowball” effect.
• Common restrictions on owner draws (taking a salary), limits on taking other debt, or requiring approval for minor operational decisions.
• Because these lenders are less regulated, they may move faster to seize collateral or force a sale if a single quarterly metric is missed. 
• Most regulated lenders will eschew paying off hard-money loans and in many cases would not lend to businesses that took such debt at all.

Most worrisome, what was meant to be a short-term, as a quick fix to a cashflow crunch, creates a “zombie” – meaning borrowers generating just enough cash to pay the interest but never enough to reinvest in growth or pay down the principal.

I urge small business owners to look at alternatives to unregulated loans.

1. Both the Small Business Administration (SBA) and USDA have a variety of loans programs, some through banks, some direct, that focus on borrowers that can’t access conventional bank debt. Gulf Coast Small Business Lending, for example, offers SBA 7(a), 504, and lines of credit as well as USDA B&I loans that, in many cases, supplant the need for hard money.
2. Equity investment, while typically more expensive than debt and comes with its own set of drawbacks, is in most cases a better solution than many of the private debt offerings.
3. Banks (like ours) offer a variety of other loan products such as factoring, asset-based loans, equipment loans, secured and unsecured lines of credit, and purchase-order financing for cash-strapped companies.  While the rates are invariably higher than SBA and USDA loans, they are largely devoid of the critical risks found in unregulated loan products.

True for all forms of loans and investments, but especially for the more opaque products, perform due diligence on the lender and have legal counsel study the paperwork.

If you are looking for capital and would like a value-added opinion from our experienced team of professionals, contact us (https://gulfcoastsba.com/our-people/) to discuss whether something in our toolbox of products fits your unique borrowing needs.  More information can also be found on our website here: https://gulfcoastsba.com/sba-loans/ or in our Knowledge Center here: https://gulfcoastsba.com/resources/.  Day in and day out we are finding a way to say YES! 

The recent interest in domestic manufacturing has struck a chord with me (and many others).  When I was fresh out of college, I was hired by Polaroid (remember them?!?) to work on a technology-transfer project that brought a now-archaic production process from Yamagata, Japan to Boston.  I spent a year in R&D, then moved to manufacturing to scale up the chemistry that ended up in one of Polaroid’s films.   I left Polaroid in ’91 and, ever since graduating from business school, have spent the entirety of career in finance. But owing to that early experience, I have always loved, respected, and supported manufacturers.

I never bought into the idea that globalization and capitalism efficiently allocated resources nor that it was okay to rely on other countries to make and grow everything for us because of some theoretical “competitive advantage” that turned out to rely mostly on cheap labor and unfair trade practices.  

So, I suppose it goes without saying that I wholeheartedly support the recent trend to reshoring and the US Small Business Administration’s (SBA) focus on manufacturing.

At Gulf Coast Small Business Lending, we provide SBA loans, both 7(a) term loans and lines of credit to the small business community who continue to be a critical component to all aspects of our economy.  We have special interest in supporting these businesses, roughly along the following categories:

1. Reshoring – financing efforts to expand domestic manufacturing to replace imported parts, components and finished goods.  SBA loans can be used for equipment, plants, warehouses, and inventory, as well as general working capital.

2. Specific industries – critical businesses are a high priority to our economy and our security and, as such, deserve the added support.  Medical devices, aerospace, defense, and pharma are just a few examples.  Again, SBA loans can be used to expand production with emphasis on capital expenditure.

3. Modernizing legacy infrastructure – Manufacturing stateside never went away, but in many cases suffered from underinvestment and, in some cases, neglect.  With the long amortization schedules and high advance rates offered through SBA loan programs, we are ideally suited to provide critical financing with the goal of bringing facilities up to date.

4. Working capital cycles – Manufacturing rather than importing changes the operating cash cycle of a business, especially during the transition period. An SBA 7a loan can help clean up a balance sheet and together with a line of credit, offer additional liquidity.

5. Supply-chain players – In many instances, small businesses provide parts, sub-components, and components to larger manufacturers.  These businesses are of particular interest to us.

As a large nationwide SBA Preferred Lender, our experienced Gulf Coast Small Business Lending team is committed to supporting small businesses across many sectors and industries. As our economy pivots more towards manufacturing, we are delighted stand alongside America’s entrepreneurs to be a small part in strengthening the US industrial base and the long-term growth and competitiveness of American manufacturers.

If you are interested in more information or want to discuss a financing need, please reach out to me or one of our Gulf Coast Small Business Lending business development officers (contact information here: https://gulfcoastsba.com/our-people/).  We are finding a way to say YES!

In recent weeks Michael Burry, legendary short-seller and author of The Big Short came out swinging at the AI hyperscalers (Meta, Oracle, Microsoft, Amazon, and Google) and their suppliers (primarily Nvidia).  In plain English, Burry is asserting that the hyperscalers are understating depreciation on their massive datacenters and thus pumping up their earnings; the equipment they are buying would be obsolete much faster than they are claiming and that in the very near term they will require far more capital expenditures, reducing their cash flow.  They will also be forced to accelerate depreciation (or write-offs), driving down earnings. Enron redux.

What does that have to do with small business lending in general and SBA lending in particular?

Believe it or not, we worry about the same issue when we assess new loan requests; overestimation of cash flow and the ability (or inability) of borrowers to take on as much debt as they request.

When a loan request is presented to us, the initial spreads are typically derived by the borrower or broker based on someone’s calculation of EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) or Seller’s Discretionary Earnings (“SDE”) which also adds back one-time expenses and expenses that are associated with the seller’s management of the business and are considered “non-recurring.”  The buyer is expected to pay a multiple of EBITDA or SDE and we are asked to provide debt to cover 80-90% of that amount.  

However, we know that in addition to expenses, a business is also required to buy inventory, replace equipment, finance receivables and pay taxes, so we calculate what we term Free Cash Flow (“FCF”) which is always lower than what’s initially presented to us and may reduce the reasonable amount of debt the company should obtain.  

Let me use an example of a loan we recently closed, financing the purchase of a FedEx route.  By the way, we love financing FedEx routes, and the SBA 7(a) program is perfect for those businesses. Since the financials rarely talk about it, one of the first questions we ask is the age and condition of the trucks. Luckily there was ample cash flow and in this particular case we ascertained that the buyer would have to purchase two new trucks in the near future, and accommodated the request by adding a small line-of-credit to make sure that there is sufficient liquidity post-close to cover not only operating expenses but also the eventual purchase of the trucks.  In other similar situations, we could not provide the debt requested and the loans were offered only after price reduction, seller-note and/or additional equity injections.

Here is my advice to entrepreneurs who come to us for capital to acquire a business (but really for any use of proceeds):

1. The broker’s write-up and calculations of EBITDA/SDE is an excellent starting point to understand the business, estimate cash flow and even peg a price.
2. Take it a step further and look at other near-term (2-3 years) cash needs, similar to what we will look at when we get the request:
   1. Equipment purchases and repairs,
   2. Inventory purchases,
   3. Growth of receivables as the business grows,
   4. Other anticipated cash needs such as taxes, rent escalation, and inflation that isn’t covered by price increases,
   5. A cushion for unanticipated uses of cash such as slower ramp-up, interest-rate increase, supply-chain disruptions, and loss of a major customer or an account,
   6. The needs escalate for fast growing/moderate margin businesses such as distributors and staffing companies.
3. Using a very simple model, calculate the anticipated debt service on the loan requested and make sure that the actual cash flow covers it with some room for error. Share your findings with the seller and broker to get their point of view.
4. Share your findings with the loan officer working on the deal; we put tremendous weight on your sober assessment of the opportunity.

I have no idea whether Burry is correct in his assessment of AI hyperscalers and their vendors. It seems reasonable.   But unlike Burry, we aren’t in the short business; we take long positions on businesses we support. Paraphrasing a description of OpenAI founder Sam Altman, we are optimists yet survivalists, with a sense that things can go wrong.  With the supporting loan guarantees provided to lenders like Gulf Coast Small Business Lending, the SBA 7(a) loan program is designed to assist entrepreneurs that cannot access traditional bank debt and we take that task seriously; help us by understanding the ability of the business to support our debt.

Gulf Coast Small Business Lending is among the nation’s leading SBA lenders. We are actively lending nationwide as SBA Preferred Lenders.  Reach out to one of our business development officers (contact info here: https://gulfcoastsba.com/our-people/) or to me to help you with your next project.  We work hard at finding a way to say YES!