Why small-business loans are a win-win for women-run startups and smaller banks

By Steve Gelsi

A bowling alley in Pittsfield, Mass., is on a roll after receiving a Small Business Association loan through a local bank

Kari Mathes has always been an avid bowler, and her hometown of Pittsfield, Mass., boasted a number of bowling alleys, including one with 50 lanes of traditional ten-pin bowling that ran games 24 hours a day. But after the General Electric (GE) plastics plant in town closed down in the early 1990s, local businesses – including bowling alleys – struggled.

In 2022, Mathes led an effort by her family to work with Berkshire Bank, the unit of holding company Berkshire Hills Bancorp (BHLB), to secure a loan guaranteed by the Small Business Administration in order to buy an old pin-bowling alley and reopen it as K&M Bowling.

The Mathes family put together a business plan and contributed plenty of sweat equity, and now K&M Bowling – named after Kari and her husband, Mark Mathes – will celebrate its one-year anniversary in March.

The 14-lane bowling alley employs 11 people. And it’s always packed.

“We’re turning people away,” Kari told MarketWatch.

The SBA loan for K&M Bowling is part of a trend: SBA loans to women-led business have risen in recent years as banks focus on ways to reach women borrowers, who they see as a growth opportunity.

The SBA provides a way for banks – especially smaller banks – to reach entry-level customers and to use their experience with and knowledge of local markets to compete with larger banks for customers.

The SBA said its lending to women-owned businesses through its two main lending programs – 7(a) loans and 504 loans – rose to $5.18 billion in 2023 from $4.7 billion in 2022 and from $3.21 billion in 2020. In 2021, lending to women hit $5.72 billion due in part to pandemic-related government stimulus programs.

Meanwhile, in 2023, financing through SBA-licensed Small Business Investment Companies for businesses owned by women, minorities and veterans increased by 25% over the previous year.

Berkshire Bank, whose 44 Business Capital division specializes in SBA loans, cites an award it won in 2023 for its SBA lending to women-led business in Massachusetts. “Berkshire Bank recognizes the importance of women-owned small businesses to the country’s economic landscape,” said Greg Poehlmann, senior vice president of 44 Business Capital.

In addition to its loan to K&M Bowling, 44 Business Capital has financed women-owned businesses including boutique fitness and childcare businesses, legal firms and building-supply companies.

More women entrepreneurs have been opening businesses as part of the so-called great resignation, with people voluntarily leaving their full-time jobs to strike out on their own, said Maggie Ference, SBA director at Columbus, Ohio-based Huntington Bancshares Inc. (HBAN). This trend has picked up in the wake of the pandemic as more people wanted to work from home or simply to work for themselves.

Huntington, the largest SBA lender in the U.S., has a mission to improve access to capital for women, people of color, veterans, Indigenous peoples and others who have historically faced challenges in obtaining loans, Ference said.

“We’ve seen an increase in volume and lending to women,” she said. “Women are saying, ‘I’m doing this for myself,’ and they’re creating jobs. Since COVID, we’ve seen a reinvigoration of the entrepreneur’s space.”

Huntington’s SBA program also fits with the bank’s emphasis on helping small business and cultivating ongoing relationships with them. Many of the bank’s SBA borrowers have been able to move into commercial loans and other products.

Since 2020, the bank’s Lift Local SBA program has written $89 million in loans, including $28.9 million for women-owned businesses.

In 2003, Angela Sharpley and her daughter Stésia Rollins, owners of the Bamba Tea/Pipe’n Hot Grill in Cleveland, received a $50,000 loan from Huntington that allowed them to get their Bamba Tea product line onto the shelves of the Meijer supermarket chain.

And Lan Ho, owner of Fat Milk, a boutique beverage brand based in Chicago, got a $150,000 loan to open a retail space. She told her story on the “Gordon Ramsay’s Food Stars” TV show.

ABCs of SBA loans for borrowers and banks

When it comes to SBA loans, there are challenges as well as advantages for borrowers and for banks.

For borrowers, the SBA allows for a down payment of 10%, much lower than the typical down payment of 25% for a conventional commercial loan. That allows a business hold onto more of its working capital.

And with SBA loans for real estate, borrowers typically have a 25-year repayment time frame with no balloon payments or call provisions. In contrast, a conventional loan might have a 20-year repayment period with a five-year balloon payment, which may require refinancing.

One thing entrepreneurs considering an SBA loan should keep in mind is the personal-guarantee aspect of the loan, Berkshire’s Poehlmann said. For anyone owning 20% or more of a business, this involves using their home or another asset as collateral, he said.

This is different from a commercial loan, which is usually based on the assets of the company and not those of the company founders or executives.

Borrowers must also provide cash-flow projections and a business plan, as well as solid estimates about how much money they need, how it will be paid back and how they plan to grow their business. This is where smaller local banks can play a vital role.

“The bigger money-center banks don’t have the advantage of having people on the ground,” Poehlmann said. “The bigger banks can be slower in their processing of these loans.”

Poehlmann has seen many cases where in which a borrower has obtained an SBA loan after being denied a loan by a business banker. Then in three or four years, that SBA loan graduates, and commercial lenders can refinance the transaction.

“SBA acts as a bridge from where the borrower started to conventional financing,” he said.

Nitin Mhatre, chief executive of Berkshire Bank, said that while the bank ranks 125th in the U.S. with $12.4 billion in assets, it has historically ranked in the top 20 in SBA lending.

The loans expand the options the bank can offer clients and also diversify its loan portfolio. SBA loans are also “incredibly aligned” with the bank’s effort to financially empower businesses, communities and individuals, he said.

“It allows us to say ‘yes’ in cases where we otherwise couldn’t have,” Mhatre said. “SBA gives us access to new clients and new relationships to build on.”

And in many cases, the bank gets to see the benefit of its loan close to home, as in the case of K&M Bowling.

“It’s good to see how they’ve been able to plant seeds and see them grow,” Poehlmann said.

After Kari Mathes and her family heard about the SBA loans offered by Berkshire Bank, they started thinking about applying for the federally guaranteed, taxpayer-funded loan program.

They also spoke to two other banks, but those institutions didn’t show the same enthusiasm for the project as Berkshire Bank did. And because they thought the SBA loan seemed like a better fit for their new business, they didn’t consider commercial loans.

Nowadays, K&M Bowling is filled with bowlers, including serious league players and part-timers, Mathes said. Last summer, local bowler Andrew Robitaille placed second in the Junior Gold Championships in Indianapolis.

Mathes and her family are now thinking about adding a mini-golf course at the back of the property. For the time being, Kari is still working as a licensed mental-health counselor and her husband Mark continues to work as a maintenance technician at a limestone business, but they hope to make the bowling alley their full-time job one day.

And their relationship with Berkshire Bank continues: The bank’s local branch managers chose K&M Bowling as the venue for their holiday gathering last year.

“We were a family business, and Berkshire made us feel like we were part of their family,” Mark Mathes said.

-Steve Gelsi

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02-10-24 1039ET

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