South End Capital, a division of Stearns Bank in St. Cloud, Minnesota, is rolling out a promising Small Business Administration small-dollar express lending product nationwide to fund loans up to $25,000 in days or even hours.
Although South End does not guarantee same-day funding, it says a streamlined application process allows it to approve and fund loans faster than many SBA lenders. South End funded its first loan under the scheme in less than 7 days, according to chairman Noah Grayson.
In many cases, the time from application to funding will be determined by how quickly borrowers complete modest documentation requirements, Grayson added.
Borrowers fill out a few brief forms, with requirements for collateral, tax returns, bank statements and financial data often being waived, Grayson said. The low-documentation process is made possible by conservative qualification parameters, including sponsor credit scores of 725 or higher and proof of four years of business activity, Grayson said.
South End has been involved in SBA lending for most of its 13-year history, while Stearns Bank, with assets of $2.3 billion, is one of the top 7 lenders ( a) of the country. In the first 11 months of the government’s 2022 fiscal year, which began Oct. 1, Stearns announced the closing of 89 7(a) loans for $62.5 million.
“We have a strong track record in SBA loans,” Grayson said. “We are very experienced with this. SBA Express is the route of least resistance to obtaining capital at competitive prices for businesses.”
Under its Express program, the SBA allows qualified lenders to make loans up to $500,000 using internal loan analytics, procedures and documentation requirements. In exchange, the agency limits its guarantee to 50%, instead of the usual 75%, for 7(a) loans. Express is a component of SBA’s flagship 7(a) loan guarantee program.
According to Grayson, South End has set the threshold for its Express loans at $25,000 because documentation requirements above that level are becoming increasingly stringent, even under the simplified Express framework. Funding in hours or even days becomes more difficult with larger loans, and “providing working capital to businesses in as expedited a time frame as possible is one of our main goals for this program,” said Grayson.
South End’s Express product is one of several recent low-value SBA loan initiatives. In July, LoanBud, a subsidiary of BayFirst Financial, with assets of $921.4 million, in St. Petersburg, Florida, bolt unveiledoffering approvals in seven to 10 days for loans up to $150,000.
BayFirst and LoanBud saw 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.
Industry-wide, loans of $150,000 or less accounted for about 6% of the roughly $23 billion in 7(a) loans closed in the first 11 months of fiscal 2022, according to the SBA. That’s up from the same period in fiscal 2021, when loans of $150,000 or less accounted for 4% of 7(a) production.
In South End, Grayson said several referral partners have expressed what Grayson described as significant interest in the newly launched Express program, as have a number of new partners, who have started submitting loans. after viewing the inaugural press release earlier this week, he added.
“Some top industry peers were immediately intrigued,” Grayson said.
Once South End has built a portfolio large enough to assess the performance of Express Loans, Grayson said he and his team would consider raising the cap to $25,000 and loosening the qualifying parameters. “Our hope is to be able to bring fast and affordable SBA Express working capital to as many businesses as possible, but in a responsible and risk-free way,” Grayson said.