THE MBFS COO and resident SBA expert joins Mark today to try to make sense of the 2025 regulatory chaos. What's going on with the SBA? What changes are afoot? Are they good or bad for credit unions?

IN THIS EPISODE:

• (00:00) Intro
• (01:48) Jeff Lyons’ professional background and what has happened with SBA with the onset of the new administration
• (05:30) Discussion of lending fees and zero subsidy 
• (08:00) Discussion of PPP Loans and non-bank, non-regulated lenders, delinquencies, and selling off SBA loans for a profit
• (15:49) Discussion of the stability of the SBA in uncertain times and what MBFS can do for a credit union to facilitate the SBA process
• (20:44) Jeff shares why SBA is beneficial for your credit union

KEY TAKEAWAYS: 

• The SBA is shifting back to pre-COVID operations, reinstating previously waived borrower lending fees. This change aims to stabilize the SBA's finances, which had gone into negative cash flow due to fee eliminations during the pandemic.
• The new SBA Administrator, Kelly Loeffler, has brought staff back to in-person work and announced plans to streamline SBA operations. However, concrete changes in process efficiency are still pending, and a significant workforce reduction (about 43%) is underway to adjust for post-PPP staffing levels.
• Due to higher delinquency rates and lax underwriting standards in the SBA loan portfolio, non-bank fintech lenders are under increased scrutiny. As a result, future non-bank SBA lending licenses are unlikely, reinforcing the SBA’s preference for traditional, regulated lenders like credit unions.
• Lender Service Providers (LSPs) like MBFS offer valuable assistance navigating the SBA loan process, but lenders must remain actively involved. LSPs can provide expertise and guidance to credit unions, helping them understand the requirements and streamline the application. However, the responsibility for the member relationship, underwriting, and overall loan management ultimately rests with the lending institution.

RESOURCE LINKS: 

Mark Ritter - Website

Mark Ritter - LinkedIn

Jeff Lyons - LinkedIn

BIOGRAPHY: 

MBFS provides credit unions with all aspects of business lending services. 

Nu Direction Lending is an online financial technology company based in Feasterville-Trevose Pa. The company provides funding from $25,000 to $500,000 directly to small businesses through an automated lending platform.

CUC-Ep. 81 - What's the deal with the SBA?

[00:00:26] Mark Ritter - Host: Hello, this is Mark Ritter, host of the podcast. Credit union conversations that you're listening to. Thank you for joining us. Please subscribe on your favorite audio platform. We love when people subscribe to us, so it comes right up when you're driving to work at the gym, mowing grass, or fishing like I do as I listen to my favorite podcasts during the day.

[00:01:12] Whatever we can do, let's talk to see if we can help you out. And one of the people that help us out here is my guest today, Jeff Lyons. Jeff is the COO of MBFS. So Jeff, I woke up today at four o'clock in the morning with hardly any sleep and flu across the country. So give yourself a, an introduction.

[00:01:48] Jeff Lyons: Sure. Thanks, mark. Again, Jeff Lyons, COO of MBFS. I've been with MBFS now going on seven years, which is amazing to me. Just flew right by [00:02:00] through the world of Covid and PPP all the way forward to where we are today with the economy, the way it is, and tariffs and all that other stuff, which I guess we can get to.

[00:02:43] So thanks for having me. Love being here. Love chatting with you.

[00:03:14] So we don't need to beat up the benefits of SBA loans. We've talked a little bit in the past. If you're interested, we'd love to talk to you about that. The SBA is really looking for credit union involvement in this program, but Jeff, I'll throw it at you first. What has happened since January 20th at noon at the SBA?

[00:03:42] Jeff Lyons: Great question. So first of all, when a new administration comes in, we typically get a new SBA administrator, which has happened here, and it's Kelly Loeffler Kelly, you know, came in and hit the ground running, kind of like the administration's been doing. And hasn't looked backwards.

[00:04:23] Outlining her agenda. She's looking to reorganize the SBA to streamline their processes. We'll see how that goes. So far, we haven't seen a lot as far as streamlining. I'm sure you know, like anything else, it's gonna take a little bit. They wanna expand access to capital. They haven't gone And isn't

[00:04:45] Jeff Lyons: Yes, and that's what I was gonna say. I haven't seen it. I'm not sure how they're gonna do that. It's great. I love to hear it. You know, as we all do support underserved communities, that's, you know, I. One of those things everyone talks about and, you know, [00:05:00] perfect love to help and, and love to hear that. Uh, on the other side of things, they're looking to lay off about 43% of their workforce.

[00:05:21] Mark Ritter - Host: Yeah, and then some of we're gonna have to re make some new friends at the SBA. Some of our close contacts people, we've gotten the known aren't there anymore, so,

[00:05:30] We've seen some turnover and, and we'll probably continue as, like you said, the, our old time friends are no longer there and they've gone on to bigger and better things for that. That just might mean we're getting old too. Yeah, that's the, you know, we don't wanna talk about that part. So the third thing, or another thing that they did was they reinstated a lot of the lending fees.

[00:06:20] Needless to say, the lending fees are back. You know, the SBA prides itself on being a zero subsidy. Government entity and always talks about being one of the only ones that doesn't receive money from the government. Although, how do you say that when Congress approves the guarantee limits and numbers of what they can guarantee in a year, but I guess it's more, but the concept

[00:06:55] Jeff Lyons: Correct. Yes, and they've been very proud of that. So the fees are [00:07:00] back in. Nothing surprising and nothing exorbitant. You know, it's 3% of the guaranteed portion on loans under 700,000, and you can roll that into your loan amount. That's typically what's done. And then anything over 700,000, it can go up as high as three and three quarters, but they kind of break it down in tears.

[00:07:32] Mark Ritter - Host: it, it really sounds like the philosophy is to roll it back pre pandemic levels of staffing fee structure to what it was historically.

[00:08:00] Jeff Lyons: The SBA is very popular in Congress in Washington, DC throughout the country. It's been, you know, a building block for. The programs, the seven A program, the express programs, they basically stayed the same.

[00:08:38] Mark Ritter - Host: And it's a shame because some of the headlines from Elon Musk and the Doge and some of the other people who have been digging in have talked about the losses and the fraud, but a lot of that was really tied to the PPP loan program, these other idle [00:09:00] loan programs and all the stuff that got rushed through at the height of.

[00:09:21] Jeff Lyons: Correct. The other side to add to the PPP and to a lesser extent that's caused some issues, are the non-bank, non-regulated lenders getting involved.

[00:09:47] Mark Ritter - Host: So, yeah, I feel like a lot of people, you know, these fintechs or other people that spun up to help out the SBA program, they've were [00:10:00] looking for things to do.

[00:10:30] Because they spin up some of those non-bank SBA licenses. And I get, from what I read, there won't be any more of those coming down the pike.

[00:10:55] You know, it is what it is. The program pretty much regulates itself over time [00:11:00] and it's done a good job of it.

[00:11:16] Or do you see it more of it rolling back to historical levels.

[00:11:41] Expand some credit. You know, I think that's, when they talk about the expand, the access, they're gonna make that a little, uh, larger. Right? Right now it's 5 million. They might go a little higher. Certain programs, I always look forward for the efficiency to be there in the SBA. We'll see. Talk a little bit about [00:12:00]

[00:12:02] Of selling loans in the secondary markets and the premiums, just because you know, the SBA loans can become quite profitable, and much of that is tied to selling the guaranteed portions on the secondary market. Where people can make a nice profit. Is that under attack? Does that, you think that'll stick around?

[00:12:27] Jeff Lyons: It, it's an interesting thing. The guarantee of an SBA loan, and typically on a seven A loan, it's 75%, so the SBA guarantees 75% of loan. The SBA is not funding that much. It's consider it like an insurance policy, but it's this loan that the bank or lender will make that has this. Backing this guarantee of the SBA of the government.

[00:13:16] But for the most part, it's a 10 year loan is what you see. So based on the time of the length of the loan and then the guided by the interest rate and the interest rates are always tied to prime, right? Prime plus two, two and a half, two and three quarters is typical. You are seeing around nine 10% premium.

[00:13:57] It comes off of your books, but you're [00:14:00] responsible to work the loan. You also get, because you're working that guaranteed portion, the servicing of it, you get a 1% fee back from the SBA in the form of they sell it at the lesser interest rate of one per, you know, 1% less. So you're making a little more over time.

[00:14:44] And I think part of the reason why is when you sell a loan over 10% or get a premium of more than 10%. The SBA comes in and, and gets splits. The difference, so if you sell one at at 112% right, [00:15:00] 12% premium, the SBA and the lender splits that 2% different over 10%. So each one gets a per 1%. So I think that's why that 10% number is kind of leveled off.

[00:15:34] Mark Ritter - Host: Now you're old enough that you've seen a couple administrations come and go. Is it typical that we see swings in the SBA program, you know, every four years or as new administration and administrators come and

[00:15:59] Right. [00:16:00] And the funny thing is the SBA tends to do well during uncertain economic times. I think part of that is, you know, banks tend to tighten up on their credit. Scoring their credit, you know, decisions in uncertain times and the SBA kind of stays steady, right? And people will turn more towards that guarantee as credit tightens in the banking level.

[00:16:40] Mark Ritter - Host: So we have seen some changes in the SBA with regards to the how they look at who we are, which the lingo is lender service providers or LSPs.

[00:17:16] Some, some LSPs got a little too far out in front of them, which is why they've tightened things up. So tell people a little bit about the can and cannots. And do, and do nots of working with somebody like us. Their SBA program.

[00:17:53] You need to stay involved in the process. You can't just hand everything off. We're there to help [00:18:00] navigate through the SBA process. Right. The SBA kind of gets a bad rap because everyone, lenders and bars like says it takes too long. It, it's cumbersome. It is, but. There's a couple things I like to talk about.

[00:18:34] The SBA wants it all up front and wants it nice and tidy in a nice package and not a bad thing, right? We're just not used to doing it in that way. The other part of it is the borrowers that wind up going for SBA loans tend to be newbies at commercial lending. So they've never borrowed on a commercial basis before.

[00:19:27] You're just front loading. That information is basically, we have seen once we get loans into underwriting and get that loan. Approved by the lender itself before it goes to the SBA for approval. Once we get that loan and submit it to the SBA for approval, once it comes back from the SBA approved, we're closing those loans within five to 15 days.

[00:20:18] We're just here to help you and we have, you know, the expertise and the knowledge to assist you to get those loans through the process and closed.

[00:20:44] Jeff, give people the one minute pitch on why it's good for your credit union.

[00:21:18] That's SBA heaven, right? It's not investment properties, it's not big, big warehouse or, or those type of deals. It's. The, the literal know, roll up your sleeves and get to work people, which you see every day. The pizza pars, right. The, the gift shops, uh, restaurants, you know, small manufacturing, and those are the members.

[00:21:45] Mark Ritter - Host: And, and I've never had a credit union tell me I want less relationships. Right. You know, these are the people

[00:21:55] Mark Ritter - Host: Right. It's like the old Sesame Street song. These are the people in your [00:22:00] neighborhood.

[00:22:22] At the latest conference, please come up and listen and tell me you heard and and you listen and you enjoy it or you hate it, and what we can do better. So, joining me today was Jeff Lyons, the COO of MBFS, who's my SBA guru here. I'm Mark Ritter, the CEO of MBFS, and your host of Credit Union Conversations podcast.

[00:22:54] Narrator: Thank you for listening to the Credit Union Conversations podcast. Have a question. Visit mark or bidder.com for [00:23:00] more information.