WILMINGTON – In a state where close to half the workforce employs small businesses, M&T Bank has become one of the top lenders through the U.S. Small Business Administration programs to see their dream business venture become reality.
M&T Bank is the top SBA lender in Delaware, according to Delaware Business Times’ records, and in the top 10 in the nation. With $200 million in guaranteed loans across the country, Delaware makes up a small fraction of that portfolio.
In the last fiscal year, M&T handled $6.5 million for
Delaware entrepreneurs in 7(a) loans, a flagship program that issues low-interest loans by private lenders and backed by the federal government for various capital needs.
But new, tight regulations apparently created in response to the rise in defaults in the 7(a) loan portfolio now ask entrepreneurs to navigate a new landscape when it comes to applying for government-backed financing. The new regulations rolled out on June 1.
Major SBA 7(a) loan program changes Delawareans should be aware of include that "small loans" are now considered $350,000 compared to the $500,000 guidance before.
All businesses seeking a 7(a) loan must have 100% American ownership now, compared to 51% under the Biden-era rules.
But so far, the biggest SBA lender in Delaware isn’t worried.
“The most important thing is there’s not a reduction of capital for small businesses in Delaware, or across our footprint really, right now,” M&T Bank Executive Vice President for Commercial Banking in Delaware Mark Hutton said. “In fact, applications and closings are up from a year-to-year basis.”
That sense of optimism may come from Hutton serving time on the front lines of one of the most chaotic times in commercial loans in recent history. Before he was tapped to lead the Delaware market, he led M&T Bank’s response to the Paycheck Protection Program, helping 10,000 customers navigate a quickly built loan program to protect businesses from COVID-19 pandemic related failure.
But Hutton’s view may also come from how he’s seen M&T Bank navigate the SBA programs in the past 15 years. The bank has 30 associates dedicated to SBA loan programs, and he said he’s confident that they have the expertise there to meet the moment.
“We live in a constant state of evolution. And, you know, again, where I take a lot of confidence is, whether it’s the changing requirements or customer needs, we have a history of adapting to it,” he said.
Under new guidelines, businesses who are taking out the 7(a) loan must provide 10% equity– before, under the Biden administration, at least half that could come from the lender. In the past, that flexibility also meant the equity could be shown in salary and debt support in a business acquisition.
There’s also a requirement for collateral of all loans, not just the 7(a) loans at $500,000. Since the 7(a) loans are attractive because of the low interest rates over the term of 10 years or more, experts believe that entrepreneurs may have to resort to putting up their home to
fulfill that requirement.
Hutton believes that most banks held tight to the 10% equity requirement regardless, and collateral is a big part of M&T bank’s typical conversations with clients regardless. He also pointed to several causes of fraud with the PPP loans as an example of why tighter restrictions may be needed.
“Every loan we underwrite, including those for the SBA, would have sources and uses. How much capital is coming to the table, where’s it coming from and what’s it being used for? That equity can take a lot of different forms, from profits retained in the company going forward or working capital,” he said. “It’s usually not a limiting factor in the loans that we’re seeing.”
While there’s a tighter hold on the 7(a) loan program, Hutton also pointed out there’s resources like the Small Business Development Center to help navigate other alternative sources like nonprofits to lend a helping hand.
“The best advice I have is to work with a lender who’s experienced. There’s a lot of other banks that have the experience, but working with a banker will make the process less imposing,” Hutton said. “Most customers that are going through the SBA process the first time do find it onerous. And we’ll do all this to streamline it and make sure it’s not as scary as it could be.”
