Category Archives: SBA


EX-IM Bank Will Expire, But Return

By Charles H. Green

Ok, so my headline today is a combination of news of the day and a prediction of the future. Congress has in fact recessed for the July 4th holiday and will not return into session until afterwards, so the EX-M Bank charter will expire at midnight tonight (June 30th). No lightening storm, best intentions or even the Supreme Court will change that fact now.

But mark my words, the EX-IM Bank will rise from its brief place in the ashes and be Krashreinstated, with full authority retroactively granted. House Financial Services Committee chair Rep. Jeb Hensarling (R-TX), the leader to kill the EX-IM Bank, may be relishing this victory for the moment, but the larger truth is that the Republican Party is at war with itself over this issue.

And once again, as with the budget, deficit ceiling, and trade policy, this fight boils down to traditional, business-oriented establishment Republicans and the newer, insurgent Tea-Party members, whose rise to power has been fueled by mostly libertarian interests.

Why am I so sure the Establishment will win and the EX-IM Bank resumes its normal operations? One word: jobs.

The trouble with the extreme right-wing of the Republican majority is as old as the party itself. While Democrats over time have largely viewed their party as a big tent, with room for everyone’s interest, their inevitable conflicts were usually settled behind doors in smoke-filled rooms. Republicans consider themselves “principled,” but really have been more about interests representing the status quo. They have always felt safe excluding plenty of people, so long as nothing disrupted ‘business as usual,’ especially big business.

Don’t believe me? Listen to the business community’s interest in most social issues, such as civil rights, gay marriage and religious ‘freedom.’ They want no part of the divisiveness brought on through the discrimination promulgated by those who tell others how to live their personal lives.

But with conservative politicians, there are a lot of differing ideas as to what “conservative” really means, and which notion of ‘conservative’ is the correct one. The Tea Party arose through the amalgamation of many narrow interests, each of which individually were actually misaligned with a majority of the Grand Old Party, such as the ‘limited government’ crowd, fundamentalist Christians, libertarians, and social bigots.

While none of these extreme ideals were necessarily strangers to the GOP, they were tolerated to build a majority for the Establishment, who viewed big business as boss. Read “American Theocracy” by Kevin Phillips for an unadulterated description of how these interests convalesced into the Republican Party. And Phillips should know–it was his idea in support of electing Richard Nixon.

While the numbers and fervor of the Tea Party were welcome, their ideological extreme views and tactics have upset business as usual in Congress, and has disrupted previously non-controversial tools of governing that both parties cooperated on in order to run the country.  Like what? The debt ceiling, the Highway Trust Fund, flood insurance, the military-industrial complex, trade policy and many other mundane agencies, policies and practices that were rubber stamped for decades. Count the EX-IM Bank in that list.

The reality? Our federal government was founded for business, and it is in the business of protecting, promoting and promulgating business. Many of the original colonies had no interest in a central government, but knew that the collective force of the colonies were needed to establish a safe environment to conduct business. Think of trading with other countries, fighting pirates to protect trade vessels, guard ports, issue patents and provide courts to settle disputes between merchants from different colonies. The federal government’s operations were originally financed with tariffs on imported goods.

The extreme right’s interpretation of the Constitution generally reads that our government should be limited to what’s described in it verbatim. That’s nice philosophy, but a more pragmatic view might acknowledge that 1) most Americans disagree in thousands of unique instances; 2) we wouldn’t have microwave ovens or the internet were that ever strictly adhered to, nor entered WWI, WWII, Korean War, Vietnam War, etc.; and 3) for over two centuries, the ‘cat’s out of the bag’ as to that line of reasoning.

With the EX-IM Bank, there’s a more compelling, if pragmatic, case to make: trade competitors in every major developed economy in the world provide export financing for their manufacturing sector, including China, whose financing over the past two years exceeded our EX–IM Bank’s total volume over the last 80 years.

Hence, the Establishment Republicans will have to push back others in their caucus to reverse the lapse of the EX-IM Bank charter in the face of what big business wants–led by a coalition of more than 46 business trade associations–who finance many Republican campaigns and have a strong interest in the robust availability of export financing.

Said one conservative standard bearer (and presidential candidate), Lindsey Graham (R-SC), “Conservatives have declared war on the EX-IM Bank: It’s been ideologically ‘unpure.’ But until you get the Chinese, the Germans and the French out of the EX-IM business, I’m not going to unilaterally disarm.”

What do you think? Comment on this page or write me at

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Small Business Lender Live Oak Bank’s Parent Plans IPO

By Ravinder Kapur

Live Oak Bancshares, the parent company of Live Oak Bank, has announced plans to go public and aims to raise $86.3 million in the offering according to a report in the Triangle Business Journal. The proceeds are intended to be used for supporting organic growth, expansion into new industry verticals and to develop a new online lending platform for the origination of loans less than $350,000.

Live Oak Bank is a small business lender with a loan portfolio spread across all 50 states. Live Oak BankSince its inception in 2007, it has provided financing totalling $2.9 billion to new and existing businesses across the U.S. Recently WilmingtonBiz reported that in April of last year, Live Oak Bancshares had announced its intention to start the IPO process, but had shelved its plans after it tied up a private investment from Wellington Management.

In the 12 months ended September, 2014, Live Oak Bank was the country’s second largest lender by dollar volume for the SBA’s 7(a) program. In its SEC filings, the bank stated that its loan default rate, compared among a group of 292 SBA 7(a) lenders that originated 300 loans or more with a total loan value exceeding $25 million, was the lowest at 1.52%. The bank ranked fifth in terms of charge-off rates, achieving a level of 0.35% for the same period.

The bank has a unique approach to small business lending and currently focuses its efforts on only 10 of the more than 1,000 industries identified in the NAICS list of industrial sectors. The bank’s website lists these 10 verticals as veterinary, self-storage, wine and craft beverages, agriculture, family entertainment centres, dental, medical, funeral home, pharmacy and investment advisory. The bank attributes its ability to keep default rates of its borrowers under control to its intimate knowledge of these small business verticals.

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To Err Positively is Human, Also Being an Economist

By Amaresh Gautam

It is human nature to err on the side of the optimism., and the trait is even praised at many places. Employers want employees with a positive mindset. Books, like “The Secret,” vouch for the power of positive thinking. The tendency to err on the side of optimism is the reason why there are so many start-ups, while statistically it doesn’t even make sense to start a company.

Rationality is almost an ideal. Psychologists know that people’s happiness depends on Optimismsome sort of positive delusional bubble, which should not be burst unnecessarily.  Economists are supposed to a rational lot, however, they too have a tendency to err on the side of optimism. That explains why so many predictions about the recovery of American economy are proving false with passage of time.

The string of soft data in the first quarter of 2015 raises concern about U.S. economy’s recovery. Foreign cross currents, declining oil prices and a more cautious domestic consumer all suggest that economic growth may drag along for a while longer than most people thought was a reasonable prediction. There have been improvements in the labor market, but perhaps market watchers would be better off waiting for some more positive signals from the same.

They should also wait and see if the Fed’s Open Market Committee (FOMC) will be able to move steadily towards the two percent inflation target. The FOMC’s current stand is that it will not stick to any pre-set policy, but rather act according to the signals it receives. While that sounds like the pragmatic thing to do, such a stance could lead to more volatility.

Small business lenders should pay close attention to FOMC communications in the coming months, as they try to make sense of the data signals to finalize some sort of policy response. Lenders are wise to remember that economists, like other humans, tend to err on side of optimism, even if they are the best brains working for the government.

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GE Capital to Retain $90 Billion Financing Unit in Sell-off

By Ravinder Kapur

In April GE announced that it was selling off its massive financing arm, GE Capital, to escape being classified as a ‘systemically important financial institution’ (SIFI), and to concentrate on its core business of manufacturing capital goods. However, a recent report in The Economist, highlighted that the company will be still be keeping the $90 billion unit. which finances its medical equipment, power generation gear and airplanes.

Financing is a key element of the package that many capital goods manufacturers offer GEthose customers who do not have the ability to buy outright on attractive terms. GE was one of the first companies to realize this and owes a large part of its success to this strategy, known in the trade as ‘captive finance’ unit.

When an airline announces the purchase of planes from Boeing, the transaction may actually be a sale to GE Capital, which then leases the planes to the airline. GE has an added benefit in the deal, as 85% of Boeing planes have engines that are manufactured by either GE or one their joint ventures.

A large number of the medical scanners manufactured by GE, a product in which it is a market leader, are on lease to hospitals and other institutions that do not have a practice of buying such equipment outright. When the company introduces a new model, it takes back the outdated unit and replaces it with the upgraded version. Meanwhile, the old unit is leased to another institution. The financing arm plays a key role in this chain of transactions.

GE is making rapid progress in selling off parts of its $500 billion finance company. It recently put a $40 billion portfolio of corporate loans up for sale. Earlier in April, as reported by BloombergBusiness, GE had entered into an agreement with Blackstone Group LP and Wells Fargo & Co. to sell most of its real estate portfolio for $23 billion. In a letter to shareholders prior to the company’s annual meeting, the company’s chairman Jeff Immelt said, “GE is an industrial company first and foremost. GE Capital must enhance our industrial competitiveness, not detract from it.”

The financing unit, which the company valued at $82.5 billion at the end of last year (implying a return on capital of 8.4%), lags behind the industrial operations, which earn 14%. As reported by the Financial Times, GE has set a target of reducing the share of earnings from financial services from the level of 42% last year to 25%. The steps taken by the company to avoid SIFI status may also result in improved returns for its shareholders.

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Mills: Alternative Lenders Rescue SME Finance

By Ravinder Kapur

Loan volumes to small businesses dropped precipitously by 18% during the recession and have not recovered since, despite growth in the economy and employment. The number of community banks, which traditionally supply 40% of loans to small businesses, fell from 14,000 in the early 1990’s, to 7,000, and their tally continues to decline. This has had a marked negative effect on small firms as 48% of loan applications by them to community banks are approved as compared to 13% of applications to big banks.

Traditional banks, which are the chief source of capital for small businesses, are reluctant Karen Mills, Harvard Business Schoolto extend finance as they find it uneconomical to extend small loans. Nerdwallet spoke with former SBA Administrator, Karen Gordon Mills, about the options available to small business owners who require finance and whether it was advisable for them to take loans from the growing number of alternative lenders.

Speaking about the role played by online alternative lenders, Karen Mills said, “…their growth is rapid, but they are still only a small portion of the total market. It’s actually quite an interesting case study. It’s an instance where entrepreneurs are actually stepping in and driving innovation to solve a problem for other entrepreneurs and small business owners. And, they are doing what entrepreneurs do best–they are disrupting. And in this case disruption is happening in an industry that hasn’t changed much in the last 30 years.”

Accessing loans from the online platforms of alternative lenders is much simpler and faster than getting them from banks. An additional advantage is that there is much less paperwork involved and a potential borrower can complete the process and get a decision online. While the rate charged by these alternative lenders is usually higher than that of banks, many small businesses value the speed and simplicity of the lending process and are willing to pay a higher cost of capital for it.

But Karen Mills advises small business owners to exercise due caution when taking loans from alternative lenders, “Last, look at what others have to say about the online lenders you’re considering. You really do need to comparison shop and learn from other small business owners’ experiences. Be sure you have mapped out a realistic forecast that allows for all the loan costs and makes sense for your business.”

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Good Idea, Wrong Denomination

By Charles H. Green

I’ve always presumed that the U.S. Postal Service makes a lot of money selling stamps that will never be used to post a letter. In fact, I suspect that they are quite prolific in honoring plenty of personalities, politicians, flowers and other views of the flag, all for the benefit of philatelists (stamp collectors) everywhere–and the largess of all that revenues without the resulting services being required to fulfill. [My recent favorite was a Jimi Hendrix commemorative.]

But the U.S. Treasury Department has been much more reserved about changing the $20 Tubmancurrency or coinage. Other than the $2 bill and Susan B. Anthony dollar coin, both of which were intended to benefit the money supply, but largely acquired and hoarded, there has been an extensive commemorative coin series that were sold with the expectation that they would never enter the circulation (albeit, they are legal tender).

Over the past 10 years, most of our coinage has been redesigned with multiple faces, particularly nickels and quarters, again, probably to boost hoarding of the different regional designs. The $5, $10, $20 and $100 bills also have new designs intended to thwart counterfeiting.

But now comes the $10 redesign idea, where it’s been decided that a woman should also grace our paper currency, and I for one, am fine with the idea and agree that this notion has been overlooked for decades. Let’s honor one or more of the many women who’ve played pivotal roles in our nation’s history and development of our society.

But I don’t agree that anyone, of either gender, should displace Alexander Hamilton on the $10 bill.

Hamilton was the nation’s first Secretary of Treasury, and more so than anyone, deserves to grace our currency for his significant achievements in moving to form the first nationalJimi Hendrix bank, organized our new nation’s tariffs, and even promote a unified national paper currency . While we honor several leading politicians, Hamilton was as much the leading banker of our nation.

The idea of replacing or sharing Hamilton’s place on the ten dollar bill also ignores the larger question: how in the hell had Andrew Jackson’s image ever landed on U.S. currency?

Jackson despised the idea of a central bank and especially hated paper currency. Making good on his campaign promises, he allowed the charter of the Second National Bank to lapse during his first term as President, and is credited with much of the economic chaos that followed, starting with the Panic of 1837. Perhaps placing him on the $20 bill was in retribution.

But a much smarter idea for altering our currency would be to elevate a fitting replacement from among a list of the dozens of women who have made monumental impacts on the direction of our nation. And who knew? There’s already a grassroots effort to do just that. launched a campaign to raise awareness of the idea and held a poll to determine who the public believes should be honored. The winner? Harriet Tubman. I’m including the other top nominees below to illustrate how changing the face of our $20 bill might look on a larger scale.

For me, just end the painful reminder of the financial disaster brought to this nation by Andrew Jackson once and for all.

What do you think? Comment on this page or write me at

Harriet Tubman $20







Eleanor Rossevelt $20







Rosa Parks $20

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Fred Hochberg Makes the Case for EX-IM Bank

By Ravinder Kapur

An 81-year old American institution, EX-IM Bank provides various types of guarantees and export credit insurance, which supported an estimated $27.5 billion in U.S. export sales in fiscal year 2014, is set to down its shutters in a few days on June 30, as its charter extends only till that date. In a recent speech in Chicago, EX-IM Chairman, Fred Hochberg, spoke about the role the Bank plays and the case for extending its charter.

EX-IM Bank supported 164,000 jobs in America last year and its programs served to

Fred Hochbert, President EX-IM Bank

Fred Hochbert, President EX-IM Bank

secure financing for American exporters when they were not able to obtain funds from the banking sector. Most of the jobs that the Bank supports are in manufacturing. EX-IM Bank extends its support to American companies only if the jobs are created in America itself. If an American company is exporting from one of its overseas manufacturing locations, EX-IM will not support it.

This support to American exporters is essential as several countries including China, Korea, Germany, Japan, Russia, France and Brazil are all competing for many of the same international orders. In fact, all these countries are proposing to increase their support to domestic exporters over the next five years.

Around the world there are 85 agencies like the EX-IM Bank fighting for sales and export-backed jobs. China’s export finance agencies doubled their activities in 2014 and they plan to double them again within the next two years. The scale of their operations can be gauged from the fact that while EX-IM Bank has done about $600 billion in financing for U.S. exports in its 81-year history, China’s agencies have done $670 billion in the last two years alone.

Referring to the future of EX-IM Bank, Fred Hochberg said, “…I was speaking to a group of exporters when a supply chain manager from Oregon asked me: ‘if EX-IM doesn’t get reauthorized, what’s our Plan B?’ I paused, and said, there is no Plan B. EX-IM is Plan B.”

For U.S. exporters, Plan A is always to secure financing in the private sector…but we all know that the commercial sector doesn’t always have the capacity to equip every business that wants to sell overseas.

That’s why we’re Plan B. And by the way, if Plan B goes goes away – if we, as a country decide to unilaterally disarm – you should know that there is also a Plan C. Plan C is China. It really is as simple as ABC.”

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Regulation Arbitrage–Gaming Reform to Beat It

By Amaresh Gautam

Should banks be regulated tightly or should they be allowed to function according to the dictates of the free market? That question and the debate around it are as old as another debate–is it the business of the government to intervene in business? But in the case of banking, this debate is a little more emotionally charged. Furthermore, the popular opinion sways from one side to another depending how vivid a past recession remains in the public’s memory.

When a recession is fresh on the minds of the citizenry, banks invariably share some of the Can of Wormsblame of the most recent fiasco and are seen as a necessary evil of sorts. However, when the recession is long passed, and not fresh in the current discourse, banks are gradually seen as a vital cog in the economic engine, who are performing the key function of monetary intermediation, that is converting short term deposits into long term loans.

The effects Great Recession and the roots of the housing bubble–fed from decades of deregulation, bank consolidation and abusive financial dealing–led policymakers to adopt the Dodd-Frank Act, a cure-all morass of regulation for the entire financial system. At that point, the popular sentiment was that the freewheeling banks had done a lot of damage to the economy and the regulators should clamp down on them.

The result was a sprawling piece of legislation that created multiple new policy-making bodies tasked with monitoring and regulating the economy. It stipulates ways to dissolve banks without bailouts in the event of a crisis. The law also created the Consumer Financial Protection Bureau, as well as increased regulation of hedge funds and other shadow banking channels.

However the big question still remains unanswered–where should the fine line of regulating banks be drawn. Lengthy, complex regulations have an after effect–they make the implementation of the same regulations more difficult to administer, allowing room financial institutions to indulge in a commonly referred to strategy of “regulatory arbitrage,” which delays, dodges, undermines and ultimately defeats the intended consequences of the regulations.

It seems that even though thousands of some of the best financial minds in the nation, who collectively have considered the best way to find a reasonable middle ground, have not created a regulatory mechanism that will work in good as well as bad times. While Dodd-Frank may be a comprehensive legislative answer, bankers seems to have already have thwarted it by gaming the system, and using it’s massive size against it.

The present need is a simpler, realistically implementable regulatory framework that doesn’t snuff out the financial capacity it’s trying to protect. Smaller commercial lenders, who face higher risk as regulations increase, should probably be prepared to see further regulatory evolution, particularly when the economy returns to a recession.



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House Appropriates $23.5 Billion 7(a) Program for 2016

By Charles H. Green

Let the good times roll? The SBA’s flagship 7(a) program’s loan approval is climbing steeply this year on a monthly basis, and is on track to break all prevous lending records. As of the end of May, the agency had already approved $13.47 billion of guaranteed loans, more than $2 billion ahead of the same YTD point in FY 2014. In fact, this sum is more than the total SBA 7(a) volumes for the entire program years in 2008, 2009 and 2010.

The House Appropriations Committee passed a funding bill that was approved last week SBA 7(a) Loan Guarantee Programby a 30-20 vote, which provides $853 million for the SBA’s operating budget, and raises the authorization 7(a) loan program to $23.5 billion next year. That represents a significant jump of 25% over FY 2015’s authorized level of $18.75 billion. This sum is the gross volume, including the lender’s non-guaranteed portion as well, and 7(a) loan defaults are entirely funded by program fees charged to borrower and lending, while no taxpayer subsidies are needed.

The bill also authorized $7.5 billion in 504 loans in FY 2016, a level far above the current volume, which may be interpreted that there is expectation that the refinance privileges will be restored before the beginning of the next fiscal year. Loans under the 504/CDC program are primarily used to finance owner-occupied commercial real estate, and have lagged in FY 2013, 14 & 15 after a brief period (FY 2012-13) where commercial real estate could be refinanced with program dollars. At the end of May, the program had been used for $2.71 billion YTD, only the second month this year that its volume had exceeded the aggregate sum lent YTD in 2014.

This legislation will be considered by the full House in the coming weeks, and must be  reconciled with the corresponding appropriations bill is passed by the Senate before it’ s enacted.

What do you think? Comment on this page or write me at

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Small Business Lender RetailCapital Rebrands as Credibly

By Ravinder Kapur

RetailCapital, a fintech small business lender, has relaunched itself as Credibly, while simultaneously deepening ties with AloStar Bank of Commerce, WebBank and CapitalSource, a division of Pacific Western Bank, to provide funding support for their small business loans and other credit facilities. The company which was founded in 2010 has doubled its revenues and originations every year since.

In August 2014, RetailCapital had received a significant equity commitment from Flexpoint CrediblyFord, the Chicago-based private equity firm with $1.5 billion under management, which brought in Glenn Goldman, a technology and financial services veteran, as CEO. Goldman, who was earlier CEO of Capital Access Network, a nonbank lender to small businesses based in New York City, said that the support of these three banks would permit Credibly to finance a wider variety of businesses.

Credibly’s website promises small businesses approval in a day for financing any amount over $5,000, based on their “overall business health”. In an interaction with CRAIN’S Detroit Business, Goldman explained that the company uses proprietary analytics to approve capital for small business owners, who in many cases do not have collateral or detailed financial statements. The factors considered include what margins different businesses have, where the business is located and how revenue has been growing.

The company’s risk analytics model allows it to extend finance to customers who may have bad credit scores but are actually good risks as they run thriving businesses. “It’s a way for us to use big data to move faster than banks can move,” said Goldman while explaining that a bad FICO score does not necessarily mean poor credit. Many small businesses put a lot of expenses on their credit cards, which can lead to lower scores, as can making inquiries for equity loans or lines of credit from banks which are rejected.

Since its inception in 2010, the company has provided finance totaling $150 million to small and medium-sized businesses spread across all 50 states. Its unique approach of using risk analytics which consider the total health of a business, rather than just the credit score has given it an edge in expanding its customer base. Credibly’s success in the fintech market which is rapidly getting crowded, will be apparent in the coming months and years.

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