CEO Insights

I am often asked (or, more accurately, I frequently volunteer my opinion without being asked) about the current state of the U.S. economy.  The facts are compelling:  The U.S. economy is on very strong footing and it is handily beating all of the major economies of the world.  Late 2023 and continuing through the beginning of this year we have experienced strong output growth, near full employment, and the taming of inflation. This latter part is still a work-in-progress, but the Fed is being cautious and not overpromising many rate cuts this year (will there be 2? 3?).  The big takeaway is this: we will be okay.  

But what does all of this mean to us here at Gulf Coast Small Business Lending, our referral partners, and our borrowers?  As our name implies, we provide SBA loans to small businesses, ranging from several hundred thousand to five million dollars, and sometimes even more.  Our borrowers are businesses you know and love: hotels, gyms, garages, restaurants, childcare centers, campgrounds, RV parks, and assisted living facilities just to name a few.   Most of our loan originations are SBA 7a loans that are used to purchase businesses and real estate; to fund growth; to start or refinance a business; or to buy out a partner.  We also provide conventional term loans to franchised operations and we operate nationwide as SBA Preferred Lenders.  This means that our viewpoint on matters such as the economy take on a national focus with a more narrow emphasis on entrepreneurs and small businesses.

In more good news, year to date Gulf Coast Small Business Lending has experienced a spike in business loan requests.  Our experienced team of SBA business development officers has been very busy over the last several months assisting borrowers with their SBA borrowing needs.  Overall, demand started to significantly pick up beginning in the fourth quarter of 2023 and has accelerated into 2024 with absolutely no sign of slowing.  We attribute the increase in SBA loan volume to several key factors:

1. The dark clouds have lifted: Entrepreneurs, an optimistic bunch to begin with, are back with a vengeance.  As fear of inflation eases from a year ago and the Fed scores some meaningful success with efforts to at lowering it further, business owners are no longer hesitating to borrow and put equity into their small businesses to fuel growth.
2. Sell-side pent up demand:  Business sellers have lost patience and are watching stable valuations.  Consequently, encouraged by the business broker community, they are returning and are putting their businesses up for sale.  We are seeing tremendous, and growing, activity in this space.
3. SBA rule changes:  The U.S. Small Business Administration (SBA) introduced several policy changes last year that make SBA 7a loans even more flexible and attractive for small business borrowers.  These changes include allowing partial sale of a business, for example, which has allowed more and more borrowers to consider an SBA loan for their borrowing needs.
4. Interest rates are projected to begin declining:  The vast majority of small business loans, certainly SBA 7a loans are booked at a floating rate, priced off Prime, adjusting quarterly.  Would-be-borrowers and credit departments alike are now factoring in flat to declining rates this year, and further reduction in subsequent years.  This obviously results in a more positive analysis and projected outcome than in a rising rate environment!  In other words, borrowing will become less costly going forward and that is obviously appealing to entrepreneurs.
5. Lenders are leaving the market:  Specific to our own worldview, we are seeing major lenders leaving or downsizing their small business and SBA lending.  In just one example, the non-banks are facing liquidity concerns, rising costs of capital, and increasing operating costs.  In many cases their models are not sustainable.  Smaller banks are also facing liquidity constraints, but even very large banks are (again) focusing on their core product lines as they prepare for a wave of office building loan maturities.  But lenders like Gulf Coast Small Business Lending are well positioned to pick up the additional business and we remain bullish about SBA lending.

Gulf Coast Small Business Lending is a unique lender in part because we benefit from the liquidity of a successful parent bank (even though we operate as an independent specialty finance company).  Small business lending is all we do; it’s our sole focus, it’s ourraison d’être, and we do it really well.  In fact, you can see what some of our borrowers have to say by visiting https://gulfcoastsba.com/testimonials/.  

We would love to hear from you as you prepare to finance your next great adventure in entrepreneurship.  Our experienced sales team loves nothing more than to work with entrepreneurs to help them realize their dreams of small business ownership.  We like to say that we are NOT ordinary lenders and that approach has never wavered.  We also like to say that good things are happening at Gulf Coast Small Business Lending which has been especially true in 2024 – stay tuned for more good news on the horizon – from Gulf Coast Small Business Lending and about the U.S. economy.  We’re bullish about SBA lending!  How can we be of help?

As I was unpacking the boxes in my new Gulf Coast Small Business Lending office and hanging my daughter’s paintings on the wall, I had a chance to reflect on the last ten years. In early 2014 I packed up the family and dog and relocated to Dallas as I joined a fledgling SBA lending team. In April of that year, the team officially left our temporary office (aka the Corner Bakery in Las Colinas) and moved into a small “real” office in Park Cities. Over the next few years our office expanded and expanded until it was packed full.

So, it’s been ten years. During that decade, Gulf Coast Small Business Lending has funded thousands of SBA loans supporting thousands of entrepreneurs nationwide. In the process, those thousands of SBA loans have translated into hundreds of thousands of jobs. Also, during the last 10 years I’ve had the honor of sharing office space (and Zoom calls) with some of the best people I will ever work alongside. We’ve added sales offices all across the country. And we’ve also become part of a (great) bank, Gulf Coast Bank & Trust Co. One of the most astounding metrics (at least to me) is that we’ve grown from three employees to four to six to now over sixty team members. It boggles my mind when I really think about it all.

But one thing hasn’t changed in the last 10 years: our collective dedication and sense of duty to support small businesses with SBA loans. Everyone, every day, without fail.

Earlier this month, we moved again. Our new offices are just ten minutes away from the old office and ten minutes away from the airport. If you’re in town (that town being Dallas), please stop by to see the new place and lose to me in a game of ping pong. I’d love to reminisce about the past and strategize for the future. At Gulf Coast Small Business Lending, we’re all in on SBA lending and we welcome you, one and all, to be a part of this growing and ever evolving story. We promise to have a bit of fun in the process of supporting thousands more entrepreneurs nationwide with the SBA loans they need to start, grow, and succeed.

PREDICTIONS WISHES FOR 2024: THE RETURN TO NORMAL

The first blog post of the year is always a head-scratcher:  review prior year? Predict this year? Pretend it’s just another week and babble on? Sitting down to write it, I started with a list of predictions for the coming year, but a dose of humility (and a second cup of coffee) soon made me change Predictions to Wishes. So here we go.

Big picture, I wish for all of us the return to an economic “normal state:” robust employment and spending, tamed inflation, along with a more accommodating Fed.  These are the elements that drive entrepreneurs to start and grow businesses and give us lenders the confidence to support such growth.  There is ample evidence that we are indeed on track to realize these goals thereby achieving the near-mythical soft-landing.  In the past few months, we’ve seen a sharp increase in loan applications and approvals, and we expect to have the strongest 1st quarter closings in our history.

We are open for business in a big way, and we are excited about 2024 and beyond. If you are considering buying or expanding a business, please give us a call to see how we can help. We are not ordinary lenders and good things are happening here at Gulf Coast Small Business Lending.

Happy New Year!  

The perspective of one SBA lender

Last week as I was sipping my first of two pre-8am coffees, I came across a headline in the WSJ that caught my eye:

“The Money Has Stopped Flowing in Commercial Real Estate”

The timing was ironic as I had just finished reviewing our own pipeline of SBA loans (both those headed towards closing and those that have already closed) a few sips earlier and was struck by the considerable number of real estate purchases and projects we are financing.  It was definitely time to reflect!

Sip.  Ponder.  Sip.

As I thought about it some more, these two seemingly contradictory facts actually make total sense.  This is because traditional banks, legitimately worried about their liquidity and real estate loan portfolios, stopped lending while SBA lenders like us have seized the opportunity and stepped up to finance deserving projects.  

What does it take for us, by all measures a conservative lender, to extend credit to a real estate project?

First and foremost, an experienced borrower. It is rough seas out there. Not just today, but always.  An experienced operator has successfully navigated challenging environments before, giving us the confidence to extend credit despite the uncertainties.

Next, realistic projections.  We study projections more closely than we do appraisals; the ability of the business to service its mortgage is a critical component of our credit decision. At the same time, we are troubled by aggressive projections, those sharply diverging from historical performance and/or benchmarks.  We are far more likely to extend credit based on moderate projections (that service the debt) than to those showing blowout growth.

Lastly, appropriate capitalization. Closely related to point #2, we look for a business to be capitalized appropriately. Not necessarily the dreaded “we need more equity,” but rather a good mix of our debt, seller financing, a line of credit, and equity.  More than anything, we want to see a post-transaction liquidity position, and will often prefer a lower equity injection to accomplish that.

So, no, loans for real estate projects have definitely not stopped, at least not for us.  I’m looking forward to discussing your next project, real estate or otherwise.  An SBA loan is often a great solution.  Let’s talk.

That is the title of an article in the WSJ last week and the quote is attributed to uber-banker Jamie Dimon.  His comment appears to have been taken out of context (he was talking about the new regulatory capital proposal), but the article goes on to discuss the precipitous drop in commercial lending our industry is seeing.

Our own experience at Gulf Coast Small Business Lending is different; our SBA loan pipeline is swelling.  In fact, we are seeing and closing some of the best loans we have seen in over three years.  There is a dichotomy between Wall Street and Main Street and we attribute our experience to the following:

1. Entrepreneurs are an impatient bunch:  After sitting on the sidelines for over two years, the operators we work with are simply tired of waiting. Business plans have been revised and revised again to incorporate slower-growth and the numbers work.
   
2. The outlook is positive:  While bumps in the road are expected (isn’t that always the case?), a slowdown is expected to be short and shallow. In my opinion, the Fed has done a masterful job getting us through the COVID crisis and bringing down inflation and I expect them to continue performing and getting us back to faster growth once inflation has been tamed.
   
3. Comfortable taking on “expensive” debt:  Related to point #1, borrowers are comfortable taking on debt with rates exceeding 10%, believing that the business can afford it and knowing that rates will begin to come down in a year or so, allowing them to refinance at a future date or in our case, take advantage of a variable-rate loan.
   
4. New SBA rules:  The US Small Business Administration (SBA), our partner in making the loans we make, has very recently liberalized its lending rules, making the loans more accessible to a wider audience and giving us the ability to structure loans we couldn’t do before.
   
5. Working with a good lender:  Yes, this last bit is a little self-indulging, but I really believe that having a good lender, backed by a strong financial institution like Gulf Coast Small Business Lending, is crucial to navigate the complexities of today’s economy and to take advantage of the new SBA rules.  Our team of SBA professionals is highly experienced and is prepared to assist entrepreneurs structure deals to their unique needs.

So don’t believe the headlines, or at least not all of them!  If you are passionate about buying or growing a business, buying owner-user commercial real estate, or consolidating ownership (buying out a partner, for example), there are lenders out there who would love to work with you.  Gulf Coast Small Business Lending is here and ready to help.