Randy McClain: New Nashville restaurants fueled by SBA loans

Wondering why all the downtown dining places are popping up, filling empty or recycled storefronts on Second Avenue, off Church Street and even at the Nashville Farmers’ Market?

One reason may be a sizable uptick in U.S. Small Business Administration-backed lending to new entrants in the restaurant business — a slew of frying pan and pizza parlor entrepreneurs.

The latest fiscal year statistics on SBA loan recipients in the Nashville area show full- and limited-service restaurants as the single-biggest category of small-business loans through the agency here. There were 17 restaurant loans from the agency locally last year, or about 10 percent of the total.

Those loans, which typically come with a federal guarantee of 75 percent to 85 percent of the borrowed amount, can reach into six figures for many startup owners, although a microloan category is capped at $50,000 for some solo small businesses.

Otherwise, categories that can help finance working capital and revolving lines of credit can easily reach $350,000. Bricks and mortar or some other expansion loans can hit $5 million. The SBA doesn’t actually lend the money, but it acts as the agency that guarantees a portion to banks or even credit unions willing to sign on the dotted line.
Walter N. Perry III, Tennessee district director for SBA, said restaurant borrowers (along with other small-business clients) are coming more often from the ranks of corporate-downsizing victims, ex-military personnel or women entrepreneurs. Nearly half of local SBA-backed loans went to women or military veterans last year.

“Military borrowers are something we’d like to do much more with,” Perry said last week. “Typically, it’s the sort of person with the passion, enthusiasm and energy to get things done. And that’s what it takes to run a business that doesn’t stop at 5 p.m. every day.”

Patriot Express loans up to $500,000 (one popular SBA-backed category) can go to entities with at least 51 percent ownership by veterans, active-duty military, reservists, National Guard members or spouses of those folks.

Surprising loan sources
So, who’s doing the lending, putting cash on the barrel head to finance restaurant and other small-business dreams?

The money comes from a few surprising quarters. It’s not always the city’s biggest banks that are willing to take part in SBA lending on a grand scale. Some big SBA lenders cross state lines to do deals.

Last year, the largest number of SBA-backed loans in the Nashville area came from Superior Financial Group, a 7-year-old nonbank that’s among a baker’s dozen federally licensed small-business lenders nationwide. Superior, based in Walnut Hills, Calif., made 27 SBA loans (average size $10,000) in and around Music City last fiscal year, federal data show.

In East Tennessee, ORNL Federal Credit Union has made a handful of million-dollar and up loans.

Atlanta-based SunTrust Banks Inc. was No. 1 last year in SBA loan dollars, in the Nashville area and statewide. It participated in $12.5 million of SBA-backed loans locally and nearly $25 million statewide.

Perry says banks want to see small-business owners put skin in the game when making even SBA-backed loans. If an owner puts 10 percent of his or her own equity into a deal, a loan becomes more doable, even on big-ticket borrowings, he said.

Community banks also have been hungrier to get in the SBA loan guarantee program, Perry says, in part because they didn’t typically have as many assets tied up in nonperforming loans during the real estate crunch as some regional bank players did.
Perry said a scaled-back economic reality has affected the SBA loan market just as it did standard commercial lending. Banks eased and then tightened lending standards a bit once again as 2011 unfolded.

But banks participating in SBA loans now often find merit when a borrower has a business idea that meets consumers’ needs. That could be quick-service restaurants with moderately priced meals, auto repair shops to keep used cars running a little longer, or day care establishments to help working stiffs make it to work even when children are home from school.

And why does it matter? The answer is this: Two of every three net new jobs are created by small business. Enough said.