Live Oak in North Carolina makes big SBA recruiting push

There is no shortage of banks and other lenders looking to expand their Small Business Administration 7(a) lending operations. 

For instance, Gulf Coast Small Business Lending in Dallas expects to add five lenders this year, boosting its sales team by 50%, President and CEO Nimi Natan said. The company is the SBA unit of the $2.8 billion-asset Gulf Coast Bank & Trust in New Orleans.

Fountainhead Commercial Capital in Lake Mary, Florida, is also in expansion mode, with plans to double originations and hire more than a dozen lenders by the end of 2023, according to Chris Hurn, its founder and CEO. 

“We want the best lenders to know that we are coming to a town near you,” says Chip Mahan, the chairman and CEO of Live Oak Bancshares, which recently sent letters to 700 SBA lenders at 85 banks to woo them to join the North Carolina company.

Meanwhile, in College Station, Texas, the $2.8 billion American Momentum Bank is pressing forward with plans to expand its SBA division nationally, announcing moves into St. Louis and Raleigh, North Carolina on Thursday. 

Live Oak Bancshares in Wilmington, North Carolina, the nation’s leading SBA 7(a) lender by dollar volume, is laying expansion plans, too — but it’s setting its sights higher than most of the rest of the industry. 

Much higher.

The $9.1 billion-asset Lie Oak just finished emailing 700 SBA lenders at 85 banks. It plans to contact dozens more at an additional 25 banks in the next two weeks, Chairman and CEO Chip Mahan said Thursday on a conference call with analysts. 

So far, the recruiting effort has produced a pipeline of 168 lenders “in various phases” of interest, according to Mahan. While it’s difficult now to say how many new hires it will produce, the move sends an unmistakable signal that Live Oak, which made 913 7(a) loans for $1.3 billion in the first 10 months of the 2022 fiscal year, is committed to growing significantly. 

By comparison, Live Oak has hired 11 SBA lenders in 2022 and a total of 85 since 2018.

“We want the best lenders to know that we are coming to a town near you,” Mahan said. “If you are an SBA lender there is a 100% chance you’ve heard of us. There is a reasonable chance you’ve heard good things.”

The 7(a) program is SBA’s largest and most flexible loan program. It offers loans of up to $5 million for working capital, debt refinance, equipment purchases and a wide range of other activities. Under 7(a), SBA guarantees loans made by banks and other lenders. Between Oct. 1 and July 22, the agency reported guaranteeing 37,000 7(a) loans for $19.7 billion. 

“We have built a culture and a technology platform that is scalable in an industry that views SBA lending somewhere in between the port-o-let of the banking business to just a sidecar to their other small-business initiatives,” Mahan said. “This is what we do.”

Mahan’s comments come as Live Oak reported second-quarter earnings Thursday, including net income totaling $97 million, up more than 180% from the same period in 2021. This year’s second-quarter results were affected by a $120.5 million gain on sale from Live Oak’s investment in the bank technology provider Finxact, which Fiserv acquired in April. 

Live Oak President Huntley Garriott likened the Finxact cash to “a nondilutive capital raise.”

“It allows us to manage our balance sheet, invest in our team, our community, in our technology,” Garriott added Thursday on the conference call.  

Live Oak also said it has $3.1 billion of loan deals in the works, the largest pipeline in its history.

That milestone jibes with a widely held idea that the current uncertain economy is an apt time for SBA lenders to aggressively pursue expansion.

Mahan “can read the tea leaves,” Fountainhead’s Hurn said. “If we’re headed for an economic slowdown, traditional banking pulls back. They tighten the credit box tremendously.”

As a result, many lenders have responded to tough economic times by shifting more of their production to SBA programs. “Every time we have a cycle like this, SBA booms,” Hurn said.  

Live Oak originated about $1 billion of loans in the quarter ending June 30. Given the size of its pipeline and prevailing economic trends, both Mahan and Garriott said they expect the company to hit its previously announced target of $4 billion of loan originations for all of 2022. 

“I think the back half of the year looks pretty solid,” Garriott said. “If we continue at this pace, we should be wrapped around that number plus or minus a little bit.”

Whether Live Oak reaches its recruiting goals may be another story, Hurn said. 

“It’s always been somewhat tough to hire people in the SBA space,” Hurn said. “Because it’s so niched and because there’s only a few thousand people who even do SBA lending on a regular basis … hiring has always been a challenge.” 

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