COVID-19 Impact on SBA Non-Essential Loans

BY SCOTT INOUYE and CASSANDRA LAFOREST, FI CONSULTING

Government portfolio managers need to understand COVID-19’s impact on their investment programs. Two key factors for any business loan portfolio are its exposures to “non-essential” businesses and to COVID-19 infection rates within the lending footprint. SBA’s flagship 7(a) portfolio with FY2019 approvals of close to $24 billion and 50,000 loans has high exposure to COVID-19 in many metropolitan areas where the number of cases and infection rates are growing rapidly. Equally alarming is the proportion of 7(a) loans for “non-essential” businesses compared to total 7(a) loans in these areas.

Overlay of U.S. COVID-19 Cases With SBA Non-Essential Loans

 

Using SBA 7(a) data from 2016 – 2018 we see the areas with the highest proportion of “non-essential” businesses are medium-sized cities (pop. >50,000) at 54% compared to large cities (pop. > 1 million) at 49% and rural areas at 47%.  Recent infection rates for these medium-sized cities average .03% compared to .04% and .02% for large cities and rural areas respectively.

With shelter-in-place mandates spread across most of the U.S. the impact on “non-essential” businesses will be devastating, especially in metropolitan areas where SBA does a lot of lending. Under the CARES Act the SBA will attempt to alleviate pressure on all existing 7(a) participants by making principal and interest payments on behalf of the borrower for a period of six months. A question remains. Will this effort be enough to support “non-essential” businesses in the hardest hit areas?

To explore the dashboard in its entirety, please visit COVID-19 Impacts on SBA Non-Essential Loans.