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There’s a new bank in town

 

If it proves successful — and the SBA lender in the pilot program reports an overwhelming early response — entrepreneurs shopping at Sam’s could soon snag business loans of up to $25,000 straight “off the shelf”.

If it proves successful — and the SBA lender in the pilot program reports an overwhelming early response — entrepreneurs shopping at Sam’s could soon snag business loans of up to $25,000 straight “off the shelf”.

Sam’s Club offering small business loans to many that banks will not

 

A small business owner walks into a Sam’s Club, picks up a year’s worth of pens and pencils, a truckload of printer ribbons and a few gallons of ketchup for the break room. But, she could use a little working capital, too. So, on the way out the door, the swings by and begins the application process for a U.S. Small Business Administration (SBA) loan.

That may sound farfetched, but Sam’s Club, a business unit of Wal-Mart, has already launched a small business loan pilot program. If it proves successful — and the SBA lender in the pilot program reports an overwhelming early response — entrepreneurs shopping at Sam’s could soon snag business loans of up to $25,000 straight “off the shelf.”

“Access to capital is a major pain point for our members and the small business Main Street community. We believe this pilot program is a step in the right direction to help fuel small business growth and create jobs to stimulate our economy,” said Catherine Corley, vice president of membership at Sam’s.

The Sam’s program is focused on minority-, women- and veteran-owned businesses only, offering financing under SBA’s Community Express, Patriot Express and Export Express programs from $5,000 to $25,000. Those who apply during the pilot program receive $100 off the application fee, a 20 percent discount, and a 7.5 APR, which represents a discount of 25 basis points.

Currently, applications are available online only, but Sam’s is also testing some in-store communication and marketing strategies.

Sam’s has chosen Superior Financial Group as its approved SBA lender. Superior is the largest SBA-backed lender in the nation, and one of only 13 approved Small Business Lending Corporations federally regulated by SBA.

In 2009, it ranked 17th, just behind BancorpSouth, in SBA-backed loans awarded in Mississippi.

Tim Jochner, CEO of California-based Superior, said Sam’s approached his company about four months ago with the pilot program proposal. He said Superior’s experience and existing infrastructure and technology were keys to Superior landing the project.

Jochner said that originally the pilot program was planned to last three to six months. However, that might change as Superior has been inundated with applications.

In one 24-hour period alone, Superior received 480 applications, far exceeding Jochner’s expectations. Superior’s system has pre-qualified 60 percent of those applications, but Jochner expects that to rise to 65 percent when Superior personnel review the applications. That, too, exceeds the historic average of approximately 40 percent, he added.

But, those numbers may swell as Superior is fine-tuning its system, hoping to speed up the loan process. The pre-qualifying application only takes a few minutes to complete. Within 10 seconds, applicants receive an e-mail notifying them whether they have been pre-qualified or not. The loan application is then sent to a coordinator before passing through technical assistance the same day.

SBA requires a “wet signature” for final approval, which delays the process. Jochner said a typical loan application takes four days to process. However, Superior’s system has turned an SBA-backed loan in a mere 48 hours.

Jochner said Superior’s goal is to refine its system that would allow the applicant to receive a credit in less than an hour.

This fast-track process is one of the qualms the banking community has with the Sam’s program. Will applicants have a clear understanding of the loan and its terms? Is an “assembly line” approach to SBA-backed lending good for entrepreneurs, many of whom lack financing savvy and experience?

John Hairston, CEO and COO of Gulfport-based Hancock Holding Company, one of the largest providers of SBA-backed loans in the state (third in 2009), said, “There are several organizations other than conventional banks who have finance lines of business who originate SBA loans. Thus, the entrance of Sam’s Club to the SBA field is simply one more large retailer trying to make a transaction profit on government-backed credits.  We have no objection to their specific entrance into the market.

“We do express concern when any borrower is issued credit by individuals who do not fully appreciate the complexity and risk of a small business owner. A retailer thinks of profit at an individual transaction level, i.e. sell this widget, make money and move on to the next customer and next widget. A banker thinks of the individual transaction as part of an overall relationship spanning multiple years, business changes, economic cycles, and so forth. So, our profit opportunity is enhanced by having the best interests of the client at heart for the long term, not just a single loan.

“Another concern is the tendency for retail sales people to have very high turnover. SBA loans are not like selling a family-sized box of Cheerios — it takes time to develop expertise and experience in order to properly assess a client’s situation and match the right credit facility to the need. So we would be less concerned about competition, and more concerned that clients are harmed by rookies with very short-term interests offering products that should be offered by seasoned lenders with long-term best interests in mind.”

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