U.S. Bank credits teamwork for its SBA lending surge

U.S. Bancorp’s SBA lending division is closing out a banner year. With a little more than three weeks remaining in SBA’s fiscal year, loan volume is running nearly 40% ahead of the total for fiscal 2023. The numbers are attention-grabbing. They come amid surveys indicating entrepreneurs’ continued optimism, despite the effects of high interest rates and inflation.

The spike has pushed U.S. Bancorp into the number-five spot among the nation’s more than 1,400 7(a) lenders, up from number-thirteen in fiscal 2023. According to Erik Daniels, head of SBA lending at the Minneapolis-based bank, the driving force behind the upward momentum is the smooth working relationship between his team and U.S. Bancorp’s small business bankers, who control the relationships with most business owners. They’re increasingly tapping SBA to meet clients’ credit needs.

“The focus we have on SBA is really about holistic relationships,” Daniels said in an interview. “We have great relationships with our regional banking executives in business banking. We work closely with each other.”

That effective coordination has produced big bottom-line gains for U.S. Bancorp, parent to U.S. Bank. Through September 3, the company had closed nearly 2,800 7(a) loans for $562.6 million. Corresponding numbers for the full 2023 fiscal year were 2,264 loans for $406.9 million. SBA’s fiscal year runs from Oct. 1 to Sept. 30.

“We’re doing more traditional 7(a) loans than we’ve ever done,” Daniels said. “I look at this as a culmination of investments in people and processes, in communication, in telling our story to our communities.”  

Though dozens of community banks, most notably the $1.22 billion-asset BayFirst Financial Corp. in St. Petersburg, Florida and the $9.6 billion-asset Byline Bancorp in Chicago, have established themselves as forces to be reckoned with in 7(a) lending, industry giants have grabbed an increasing share of the market  in recent years. Along with U.S. Bancorp, JPMorgan Chase, Bank of America and Wells Fargo all achieved substantially increased lending volume in fiscal 2024, according to SBA statistics. 

Ultimately, having its SBA and small business lenders operate in sync positions the $680.1 billion-asset U.S. Bancorp to leverage its size and balance sheet. Where smaller institutions can offer borrowers credit, U.S. Bancorp can provide deposit options, treasury management and merchant services. “I think what we’re seeing that is different for us is the focus on relationship value for customers,” Daniels said. “We can help them with a merchant account. We can help them with an SBA loan. We can help them with a conventional loan. We have these options for them.”

Additionally, U.S. Bancorp is a portfolio lender, a status that gives its bankers a competitive edge negotiating terms.  With about half of 7(a) loans sold on the secondary market, many originators have to work with an eye toward meeting buyers’ requirements. “We’re giving customers more options and that seems to be resonating,” Daniels said. “We have customers who are talking to us now about [collateral], if there’s an opportunity to substitute collateral because they are selling their house and buying a new one. We can help them with that.”

Optimistic sentiments

U.S. Bancorp’s SBA results appear to validate the 2024 Small Business Perspective the company released Aug. 26. The survey found 87% of small business owners were optimistic about the future with 73% reporting growth in the past year. U.S. Bancorp results were in line with a May Bank of America survey that found 65% of responding small business owners expected revenues to increase while 71% planned to seek funding.  

“Small business owners continue to show resilience and optimism despite feeling impact from ongoing stressors such as the economy, changing labor market dynamics, higher prices and wages, and other macroeconomic factors,” Shruti Patel, chief product officer for business banking at U.S. Bancorp, said in a press release. 

Integrating different business lines to boost revenue remains a major objective for U.S. Bancorp. Similar to its SBA efforts, U.S. Bancorp “will likely focus on the opportunities to improve connectivity between business banking and payments,” Jeffries Analyst Ken Usdin wrote Wednesday in a research note. The consumer and business banking segment, including small business banking, generates about a third of total revenue and U.S. Bancorp believes it can drive significant growth “over the medium-term,” Usdin wrote.  

U.S. Bancorp reported net income totaling $1.62 billion for the quarter ending June 30, an 18% increase over the same period in 2023.

Taking full advantage 

Through September 4, SBA reported approving 63,183 7(a) loans for $27.5 billion. That lending volume is equal to the total for fiscal 2023 but certain to rise substantially through September 30. Indeed, SBA approved loans totaling nearly $4 billion in September 2023. 

SBA has made several important adjustments to its 7(a) lending guidelines in recent months aimed at boosting program activity and attracting new private-sector lenders. In May 2023, began permitting partial buyouts, amending the previous rule that required 100% changes in ownership in agency-financed transitions. In August, SBA launched a three-year pilot program intended to simplify its various working capital line of credit product set.

U.S. Bancorp has moved to take full advantage of the changes — especially the new buyout rules — Daniels said. “In our healthcare initiative [partial buy-outs] have been table stakes for years. Now, we’re able to offer an SBA solution,” Daniels said. SBA said it has been seeing a high level of interest in the lending community around changes of ownership, including partial changes of ownership. It expects to see the number of loans increase as lenders familiarize themselves with available opportunities. 

While changes in ownership have grown into a promising niche, U.S. Bancorp is seeing strong SBA demand across the board, Daniels said. “Customers are still coming to us. They still want help to grow,” Daniels said. “We have people in the branches and in the markets we serve. That gives us the ability to offer different types of programs. We’re active in 504 lending, we’re active in traditional 7(a) lending, and we’re active in SBA Express lending. We believe that bringing these options has helped us grow relationships.”