The fintech Lendistry made a big splash in its first full year offering Small Business Administration 7(a) loans, emerging as the No. 1 African American-led lender in the SBA’s flagship program.
Lendistry, a community development financial institution in Los Angeles, originated 110 loans for $56.6 million in fiscal year 2023, which ended a little over a month ago.
That production vaulted Lendistry ahead of more established lenders run by Black management teams. The $420 million-asset Mechanics and Farmers Bank in Durham, North Carolina — which closed 11 7(a) loans for $7.4 million in SBA’s 2023 fiscal year — was the closest competitor.
Lendistry’s emergence coincides with significant strides by the SBA in delivering capital to African American entrepreneurs. Administrator Isabel Casillas Guzman noted in a recent press release that 7(a) loans to Black borrowers reached $1.26 billion in fiscal 2023 – eclipsing $1 billion for the first time.
Though Lendistry had participated in SBA’s Community Advantage Program before the pandemic, it began to attract attention in 2021, when it became the eighth-largest Paycheck Protection Program lender with $4.7 billion in loan volume. It joined the 7(a) program in April 2002 and originated 22 loans for $6.7 million during the final five months of fiscal 2022.
CEO Everett Sands said in an interview he expects a bigger year in fiscal 2024, which began Oct. 1. The company appears to have gotten off to a strong start. Through Thursday, Lendistry had closed 53 7(a) loans for $9.4 million, according to SBA statistics.
“From my standpoint, we’re starting to get into a pretty good groove,” Sands said.
Under 7(a), the SBA offers guarantees of 50% to 85% on loans up to $5 million made by participating lenders. The Community Advantage program, which sunset on Sept. 30, allowed lenders to make loans up to $250,000 in their home states. As a 7(a) lender, Lendistry has no geographical restrictions. It is also able to retain relationships with growing clients.
“It’s solved for `what happens when we succeed and the business succeeds? Where do they go next?'” Sands said.
Historically, African Americans have trailed other demographic groups in SBA lending, rarely receiving more than 2% of overall 7(a) production. In recent years, the numbers have been trending up. Lending to African Americans under 7(a) hit 4.5% in fiscal 2019 and 8% in fiscal 2023. It remained steady at 8% through the first five weeks of fiscal 2024.
There have been similar increases in 7(a) lending to Hispanic entrepreneurs, as well as to women, according to Sands. “There’s no doubt about it, the minority community is starting to have better relationships with SBA,” Sands said. “For those of us who follow the data, it’s kind of like a public secret. These borrowers are out there. Unfortunately, a lot were ending up in the hands of predatory lenders.”
The 7(a) program is growing in absolute terms, too, with loan volume jumping 7% to $27.5 billion in fiscal 2023. The numbers indicate a willingness by small-business borrowers across demographic groups to seek 7(a) financing, Sands said.
In past years, “there was definitely a struggle with [borrowers] in terms of, `Is SBA overly complicated, is SBA too hard, why would I do this?'” Sands said.
“There’s a little bit of a change going on. We plan to capitalize on it,” Sands stated.
Participation in 7(a) and other SBA lending programs by Black-owned banks has been limited, largely due to economics, said William Michael Cunningham, founder of Creative Investment Research in Washington. Hamstrung by thin profit margins, few can afford to stand up an SBA lending team. “It’s going to be expensive,” Cunningham said. “It’s going to cost.”
The situation has worked to the disadvantage of African Americans looking to open businesses “since SBA may be the biggest source of startup capital for Black startup entrepreneurs,” Cunningham said.
Things appear to be changing. As with many minority borrowers, Black-owned banks seem to be warming to SBA. Two such banks — the $601 million-asset OneUnited in Boston, and the $581.4 million-asset First Independence in Detroit — have agreed to act as referral sources for Lendistry.
The $720 million-asset Carver Bancorp in New York, which like Lendistry has a primarily African American management team, announced this month that it is increasing its focus on 7(a) and 504 loan origination activity. SBA loans currently amount to less than 1% of Carver’s loan portfolio.
Borrowers typically use SBA’s 504 program to finance real estate and big-ticket equipment purchases.
“We’re in the earliest stages of fielding queries and screening opportunities,” Craig MacKay, Carver’s interim president and CEO, said in an interview. “We’re in the process of making our first loans under this enhanced initiative, so we’re excited. … SBA lending has always been something that we have aspired to do.”
Lendistry’s business model relies on partnerships with CDFIs around the country, as well as minority and depository institutions. “Right now, the game plan is to keep leveraging those partners,” Sands said. “It’s a happy marriage, and we think it can keep on going.”
However, Sands did not rule out seeking a bank charter if the situation changes. “It’s not out of the realm of possibility,” Sands said. “We always have to think about how we’re going to capitalize the institution.”