In January, after more than two years of selling Italian Ice out of a food cart at Columbus, Ohio-area malls, festivals and other events, Shanika Sheppard visited her local Huntington National Bank branch in search of funding for her next business venture. Sheppard, who had financed her Italian Ice business from savings, was mulling opening a local bar and grill where she could serve Philly cheesesteaks, loaded fries and — of course — Italian Ice.
With COVID-19 still weighing on the global economy, many banks would likely have balked at the prospect of making a relatively small restaurant loan — Sheppard said she needed well under $150,000 — to a young entrepreneur with a thin credit file. Huntington has taken a different tack. For the past 18 months, the $177 billion-asset company has actively sought the kind of small-dollar loans Sheppard ultimately received.
Under its Lift Local program, part of a wider $40 billion community plan, Huntington has pledged $100 million for small-dollar loans, from $1,000 up to $150,000, in support of minority-, women- and veteran-owned businesses. Huntington offers the program in all 11 states in its Midwest footprint. Through its most recent accounting on May 3, the bank, which is based in Columbus, had made more than 520 Lift Local loans totaling $36.5 million.
Additionally, 997 applicants have registered for the financial education courses offered by Operation Hope. Huntington requires borrowers complete this course before it approves and disburses Lift Local loans, so the program appears to have a robust pipeline, Maggie Ference, Huntington’s program director for Small Business Administration lending, said in an interview.
It’s capital that minority-owned and other underserved small businesses desperately need, Operation Hope Chairman and CEO John Hope Bryant said.
“You can’t just provide motivation and pep talks,” Bryant said. “The fact Huntington is writing a check” once Lift Local applicants complete the financial education curriculum “is what’s fueling people to go through the whole process.”
Huntington is the nation’s largest SBA 7(a) lender by number of loans, and the average size of one of Huntington’s regular 7(a) loans is $152,000, while the industry average is $527,143. Huntington is using Lift Local — which averages about $70,000 per loan — to expand its portfolio of 7(a) loans.
“So many of the participants in this program have been a little disenfranchised by access to capital and banking systems as a whole,” Ference said. “We’re really focused on trying to make sure we rebuild that trust.”
The difference in loan size can be seen as an indicator the program is reaching businesses that haven’t typically shown up on banks’ radar screens.
“Around 36% of our booked loans have one year or less in business,” Paige Sanchez, Lift Local’s program manager, said in an interview. “They’re probably still startups.”
Small loans, big difference of opinion
Huntington’s deepened commitment to small-dollar business lending comes amid an ongoing push by the SBA for an enhanced role in this market segment.
As part of its budget for the 2022 fiscal year, the Biden administration proposed giving the agency nearly $4.5 billion to make loans of $150,000 or less directly to small businesses. Supporters justified the proposal, which departs from the SBA’s existing model of guaranteeing loans made by banks and other lenders, claiming the smallest businesses — including many operated by women, minorities and veterans — aren’t getting enough capital.
In the face of fierce opposition by congressional Republicans, banks and credit unions, funding for direct lending was scaled back to $2 billion, then dropped altogether. The plan’s backers aren’t giving up. At a recent Senate Small Business and Entrepreneurship hearing, Isabella Casillas Guzman, the SBA’s administrator, said the agency was still studying a direct lending option.
Sen. Ben Cardin, D-Md., chairman of the Small Business and Entrepreneurship Committee, said in an interview that direct lending remains a priority for Democrats. “A lot of [smaller businesses] don’t even apply at commercial banks because they know they’re going to get rejected,” Cardin said.
Banks, especially community banks, “used to be major players” in providing small-dollar small-business credit, but as consolidation has thinned their ranks, “other providers are jumping into the arena to provide capital,” Kate Hao, CEO of Happy Mango Credit, a New York fintech that provides underwriting tools to lenders to unbanked and underbanked individuals, said in an interview.
For loans under $1 million, borrowers are turning increasingly to fintechs and other nonbank lenders, Hao said. For smaller loans, community development financial institutions are filling the gap.
That said, inside the SBA’s flagship 7(a) program — which is dominated by bank lenders — small-dollar lending appears to be making something of a comeback. Between Oct. 1, the start of the 2022 fiscal year, and May 27, the agency approved 13,397 loans of $150,000 and less. While that total is down 39% from the same period in fiscal 2018, on a year-over-year basis it’s up 32%.
Meeting a need
Huntington introduced Lift Local in October 2020 with a $25 million commitment. Seven months later, it upped the ante with a five-year, $100 million extension. The bank had been considering launching a program focused on underserved small businesses when George Floyd was killed in May 2020, creating a new sense of urgency, Ference said.
“The headlines coming out of Minneapolis were gut-wrenching,” Ference said. “The economic and social disparities that were [underscored] by some of those headlines really drew our attention to the need to do something extraordinary. … It gave us a chance to step back and say, How do we do something more?’ We wanted to make sure we were focusing on raising up women, minority and veteran small-business owners in a way that had never been done before.”
In broad terms, the Lift Local model pairs an SBA loan of $1,000 to $150,000 with a course of online financial education provided by Operation Hope. To encourage applications from small businesses, including startups and sole proprietors, Huntington dropped its standard origination fees and it pays borrowers’ SBA fees. It also lowered its minimum Small Business Scoring System expectations from a score of 155 to 140.
Huntington licensed software Operation Hope had developed to automate the process of developing a business plan, then customized it to serve as the core of Lift Local financial education curriculum.
“Every time we [checked], they were adding another feature,” Bryant said. “That’s how we knew they were serious. … What typically happens is banks say, ‘Great. Thank you.’ They slap it on a website somewhere and you never hear about it again.”
According to Bryant, Huntington and Lift Local stand out among the scores of banks that have moved to expand outreach to underserved individuals and small businesses since George Floyd’s death.
“They’re not just checking the box,” Bryant said. “Their data suggests they’re making a business out of [Lift Local], which is what I’ve been telling people. … There’s legitimate business to be had here. They should approach it seriously and create a ladder effect right up to their balance sheet.”
From one to many
Many Lift Local loans have had precisely that kind of impact, spurring growth at companies that were essentially sole proprietorships. Shanika Sheppard used her loan to open her eatery, Marlowe’s Cheesesteaks, on North High Street in Gahanna Ohio, a Columbus suburb, on April 30. Business was brisk enough over the opening weekend for Sheppard to acquire a second griddle and seek another cook to reduce wait times.
Now, Sheppard, a Philadelphia native, is mulling plans to open some smaller storefront shops focused on her Italian Ice, which she continues to market in malls and at festivals.
“Back in Philadelphia, Italian Ice — we call it water ice — is like a staple. That’s what we eat for dessert,” Sheppard said. “It’s still a goal of mine to have the Italian Ice in its own space. We can incorporate the custard, the Italian Ice shakes, and then also wholesale our Italian Ice. That’s the goal for year two.”
Another Columbus resident, Ty Banks, used a $45,000 Lift Local loan to buy a new food truck and relaunch his business selling what he describes as vegan soul food. Banks started Where it All Vegan in September 2019. While the effort got off to a promising start, sales quickly dried up following the onset of the coronavirus pandemic, forcing Banks to sell his idled food truck to pay debts.
“When we were down and out, Huntington said, ‘What can we do for you?’ ’’ Banks said. “We launched our new food truck through the Lift Local program in January 2022. Since then, we’re already on pace to do well over six figures [in revenue]. I was actually down and out. I didn’t have any money coming in.”
“I’m in Huntington’s debt,” Banks continued. “If they ever need anything from me in terms of food, they don’t even have to pay me for it.”