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:
- 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.
- 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.
- 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.
- 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.
- 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?