San Jose – 1,300 businesses benefitting from SBA approved loans since 2008

OED recently researched the value and impact of Small Business Administration (SBA) approved loans for business here in the city of San Jose. Figures released going back to 2008 reveal that more than 1,300 businesses in the city have benefited for a total value close to $750 million of approved loans.
SBA approved loans have become a very well established option for a business to secure a capital asset, achieve a business acquisition or finance growth. Analysis of the activity over the past few years provides a fascinating insight to the impact of the recession and subsequent recovery.

The SBA loan has a major advantage for business: the loan has super-competitive market rates fixed for the loan period ranging from 7 to 20 years. The target audience for an SBA approved loan is a private business with an annual turnover under $20m. so it has a very wide appeal.

The SBA states that over the past 17 years, small business have created 65% of all new jobs in the USA. Here in San Jose there are more than 14,600 small businesses employing in excess of 116,000 people across all main sectors.

How does an SBA loan work?
A business owner seeks a loan from a bank or other regulated financial institution. The bank typically wants to see two years of profitable trading, a good credit score and complete tax and business filings. A key consideration is the ability of the business to repay the loan. The bank then seeks the SBA’s approval – the loan will be made with the bank’s money, and the benefit is that the Government has stepped in to underwrite the loan risk in effect guaranteeing to cover the bank’s debt.

The SBA can only approve a maximum of $5 million, and business owners must commit to a minimum of 10% of the project costs – a relatively low percentage from the borrower — designed to encourage and limit personal investment risk. Importantly, some banks will allow a more experienced business to include non-SBA approved loans so the total project cost can exceed $5 million One bank uses this model for all SBA approved loans so that the project cost ratio is 10% owner, 40% SBA approved, 50% non-SBA-approved loan.

What this means is that the $750 million of SBA approved loans is an under-estimate of the true value of bank lending using the SBA model to finance small business in San Jose. So:

  • How does the City of San Jose compare to the rest of the County and USA?
  • What are the headline trends and analytical highlights & insights
  • What has happened in 2018?
  • Are there spin off research questions to be considered?

The headlines for San Jose

Over an 11-year period from 2008 through 2018 the following key numbers are as follows:

  • The aggregate value of all loans made by financial institutions reached $729,391,200.
  • 1,307 loans were made to companies located in the city of San Jose.
  • The average value of a loan was $558,065.
  • The aggregate total number of ‘jobs protected’ was 14,877.
  • The average loan amount per job protected was $48,864.

How does the City of San Jose with the rest of Santa Clara County? The following chart shows figures for the City, the rest of the county including cities like Mountain View and Palo Alto, and then the county as a whole.

The key points of comparison for the City of San Jose are:

  • San Jose businesses accounted for 41.4% of the aggregate $ value of all loans across the County of Santa Clara.
  • San Jose business accounted for 45% of all approved applications: a key strength.

How was the recession and recovery reflected in the volume and value of SBA approved loans?

The trends that reveal the impact of the recession and the recovery are as follows:

  • The recession ended by 2012.
  • The swing from the lowest point in the recession to the peak in the recovery as measured by quarterly lending was $3.6 million in Q1 of 2009 to $42.7 million in Q3 of 2016.
  • The average lending per quarter over the 11 years is $18.7 million.
  • That in seven out of the 11 years the volume of approved applications and the $ value exceeded the average, indicating relative stability and demand.
  • For the past six years, the average loan value has exceeded the 10-year average indicating the consistent financial strength of individual applications.

What’s happened in 2018?

The latest figures for SBA approved loans in the City of San Jose. These are the headlines:

  • Total value of approved loans for 2018 reached $59.2 million – heading towards $80 million for the year.
  • 101 loans YTD with an average value of $586,477.
  • San Jose accounted for 49% of approved loans and 49% of the dollar value in Santa Clara County compared to a 10-year average of 45% of dollar value. 2018 is a good year so far for lending in the city.

What are the key strategic headlines?

In 2018, 38 different banking and financial institutions have approved loans for business in San Jose. This reveals a very competitive environment to secure a loan. The intensity of competition and choice for the customer indicates that San Jose has a healthy market for small business investment.

Early outreach meetings we have held with banks highlight the role of brokers, CPAs and attorneys who make a fundamental difference to the quality of applicant and required financial information. This reinforces the importance of the city’s economic ecosystem to sustain wealth creation and economic growth. The next step in the process is to work with banks and partners within the Business Owners Space to further strengthen San Jose’s lending for small business.

If anyone has views and information to share, I would be delighted to hear from you. Please contact me at