Opportunity growing for small business lending in Nevada

Joe Amato, district director for the Small Business Administration’s Nevada District Office, garnered a pretty solid appreciation for the small business lending landscape throughout Nevada following his second annual 10-stop tour of the state earlier this year.

The banking and capital ecosystem for Nevada small businesses is good, Amato says, and there are many active players in the small business lending landscape who do good job of processing loan applications and doing small business loans. Still, there’s room for improvement, he says.

One major obstacle that impacts small business lending in Nevada is the fact that while a handful of local lenders do local underwriting and loan approvals, the vast majority of banks that could potentially provide capital to Nevada small business owners have underwriting and loan processing centers that are out of state, mostly in California.

That often puts an unnecessary burden on Nevada small business owners since out-of-state lenders often aren’t tuned into the factors driving Nevada’s surging economy.

“It sometimes creates lag time in processing and also (leads to) some detrimental results to small businesses because loan servicers in California don’t understand the Nevada (business) landscape like Nevadans do,” Amato says. “It’s one hurdle I have been trying to overcome with larger lenders, to get them to take a more realistic view that Nevada is not just a small state with a smaller population. It’s a proactive state with a lot of businesses.

“It’s not just the two or three million people who live here, but the 50 or 60 million people that visit here every year they should be thinking about.”

A fast-growing business segment

In his short tenure with the SBA — Amato started there in September 2017 — the agency and financial institutions have worked more closely to provide greater access to capital for Nevada small businesses, he says. The SBA also has helped educate, train and develop through key resource partners more opportunities for business to startup, grow, expand, scale and survive, Amato adds.

The SBA provides two main types of funding for small businesses:

SBA 7(a) Loan Guarantee Program. The SBA guarantees up to 75 percent of funds to lenders providing loan amounts up to $5 million.

SBA 504 fixed asset program. Lenders work in collaboration with an SBA-certified development company to finance purchase of fixed assets, typically real estate, buildings and machinery with a major life span of more than 10 years.

“Our lending programs are only useful if they are used,” Amato says. “Whenever possible, if we can make the difference with our loan guarantee programs in supporting small business, that is what we are here for and what we are trying to do.”

Small business lending is the fastest-growing business segment at Nevada State Bank, says Rick Thomas, NSB’s senior vice president and Northern Nevada executive. More businesses are obtaining financing, but that’s mostly due to the strength of their balance sheets, and the hot regional economy underwriting criteria has pretty much stayed the same, Thomas adds.

“More business are doing better, and therefore there’s a higher rate of approval,” he says.

Small business lending is powered in part by demographic shifts as Baby Boomers age out of the workforce and their children or younger entrepreneurs pick up the reins, Thomas says. It’s also a natural byproduct of the strong job growth throughout the region, which flows right into small business growth.

And there’s no one area of small business that’s booming — Nevada State Bank’s lending is broad-based and diverse, Thomas says. Lending for startups, however, can be a bit more difficult because most financial institutions like to see several years of proven success, he notes.

Navigating the biggest hurdles

Jake Carrico, loan officer with the Nevada State Development Corporation and adviser for the Small Business Development Center hosted on the UNR campus, says that while lending conditions are good for many small businesses, there’s often some disconnect between entrepreneurs with a vision and their ability to get that vision financed.

“If they have a good idea, they think the banks will find a way to make it happen, but really it still falls back on the basics of lending, especially with startups,” Carrico says. “With startups, banks look to see if there are other sources of cash flow or collateral, as well as the person’s management experience.

“Those are the biggest hurdles. It’s not difficult to borrow money, but banks are uneasy when people don’t have other sources of cash and have limited experience in their industry.”

According to Nevada State Bank’s 2019 Small Business Survey, nearly two-thirds of businesses queried feel their revenues will grow this year, while more than three-quarters agree with the direction of Northern Nevada’s economy. Escalating costs for employee healthcare, along with business taxes and government regulations, were the primary concerns of Northern Nevada small business owners, while hiring and retaining quality employees was their primary challenge.

More than 400 businesses were interviewed for the NSB Small Business Survey in January. Business expansion continues to be a consistent theme, and 19 percent of businesses in the survey expect to apply for financing in order to expand operations.

Rob Sabo is a Reno-based freelance writer and a former reporter for the Sierra Nevada Media Group.