Last year, Karen Mills, former head of the Small Business
Administration, heaped praise in the Harvard Business Review
on a group of entrepreneurs she claimed were vital to America’s
middle-class. Surprisingly, it wasn’t the bright people who’ve
brought us Pandora, Uber and DoorDash. It was instead the folks
who operate the roughly four million local enterprises that handle
our daily needs. “These businesses are also the restaurants, shops,
and storefronts that shape and reflect a community’s identity and
values,” she wrote.
These same business owners, unlike their high-tech counterparts,
can’t turn to VCs or senior lenders in their struggle to fund their
growth or launch a dream. If they’re restaurant franchisees, they
may seek an SBA-guaranteed loan or tap their 401(k) plan or,
perhaps, do both.
Or, recently, they may seek financing from online lenders.
Internet borrowing has become increasingly popular, according
to the SBA’s new Alternative Finance Series. In 2015, businesses
with 10 to 49 employees were the second most likely to apply
for an online loan and the most likely to be approved. They were
also the most likely to apply to small banks for loans and the
second most likely to be granted one. (The series doesn’t currently
include lending activity for specific industries.)
SBA approvals, meanwhile, have been climbing steadily. Current
data show overall approvals for 7(a) loans—the most common for
startup and growth capital—jumped a compounded 9.3% from
FY12 to FY15 (the most recent year for which data is available).
For restaurants specifically, volume increased 18% for 7(a) loans
from FY14 to FY15, the SBA says.
Yet the government agency estimates restaurant loan approvals for
the popular 7(a) program will in increase only 5% in FY16 (ends
September 30). Asked why, the SBA’s Associate Administrator
of Capital Access Ann Marie Mehlum, cited in an email “a more
normalized growth rate after two record years.”
That’s likely to surprise Boefly CEO Mike Rozman, who hasn’t
noticed a deceleration this year. He cites “countless examples” of
Tier 2 and Tier 3 franchisees seeking loans from SBA-approved
lenders. The Boston-based company matches franchise borrowers
with lenders, vetting the franchisees in the process. “Senior
lenders are not going to do those deals,” he said. “So who’s
going to take on that first-unit franchisee? We are seeing that
overwhelmingly it’s the SBA.”