On June 1, 2023, Administrator Isabella Casillas Guzman, Head of the U.S. Small Business Administration (SBA) and voice for America’s 33.2 million small businesses, opened a window of new applications for Small Business Lending Company (SBLC) licenses for the first time in over 40 years. Many community banks and credit unions got a first taste of SBA lending with 2020 PPP money and have expanded their market strategies to continue focusing on this highly profitable business. With a 75% – 90% guarantee from the federal government to mitigate any losses on these loans and the 7% – 9% fee received for loans sold on the secondary market, SBA lending is more profitable than typical commercial lending without the downside of risk. The opening for more licenses will also extend to non-depository companies, making the competition for clients and employees even more fierce.

There are two primary types of SBA shops.

One serves as a hold shop, primarily holding the loans internally. These businesses typically pay lenders a higher salary with a commission targeting around 30% of base pay. The other is a shell shop, where most loans are sold on the secondary market. These shops pay lenders approximately 30% of total compensation in base pay and 70% in variable pay. Common targets for the commission piece are the percentage of overall loan production or a portion of the secondary market premium. A straightforward calculation is to take the net sale proceeds, deduct any loan broker fees, and then assign the percentage to the balance.

There is almost always a clawback if loans default within 18 months.

Generally, these commissions are paid out as the SBA loans close. Incentive plans are based on tiers that have five to eight levels, and range every $3 to $5 million. Tiers range from 50 basis points (0.5%) to 300 basis points (3.0%). Regardless of the type of shop, the increase in competition in the market for SBA lending will almost certainly lead to ever-increasing salaries to compete for already trained talent that can help build the infrastructure of the new entrant to the market.

The SBA Lender is often called SBA Business Development Officer. Regardless of title, this role brings in loans through the front door – an SBA 7(a) loan or the first lien position of an SBA 504 loan.

There is likely a need for three levels of this position.

The SBA Lender I is appropriate for those new to the position and expected to produce less than $10M in loans. This role will likely align with the salary grade for a Commercial Lender I or Portfolio Manager. These lenders can expect a total cash compensation of around $125,000. The average SBA Lender would be expected to produce closer to $10M – $15M. These lenders can expect a total cash compensation of $200,000 – $225,000 annually. In contrast, in commercial lending, one would not expect a new level for only $5M more in productivity. Nor would a Commercial Lender who produced $15M in loans hope to have a total cash compensation anywhere near $200K. The SBA Lender III would be for those expected to produce $15M – $25M. These lenders can expect a total cash compensation of $250,000 – $350,000. If SBA lenders regularly produce over $25M, be prepared to consider a fourth level.

The grade for the SVP SBA Director of a midsized program that produces $20M – $180M annually would generally have a base near $175K – $185K. The difference in total cash compensation is in the variable pay element. Over one-third receive an override on sales productivity. Regardless of the program size, a highly tenured professional for this role is needed, and thus, the base salary is flexible based on program size – not elastic. If the program size is between $20M – $50M, the total cash compensation would average $250,000. If the program size is over $100M, the total cash compensation would average around $400,000. This could cause an internal equity problem between this role and that of the CLO, whom this role likely reports to. Consider the prospect of paying higher in base to marginalize this issue.

Support roles also pay higher than commercial lending roles, even though the complexity and experience of the talent are equal.

This speaks to the need for, and challenge in, finding talent with direct SBA experience. The 2023 Coleman SBA Salary Survey reports that 50% of SBA Underwriters have changed jobs in the past two years. On average, an SBA Underwriter underwrites one weekly loan and, with five years’ experience, has an average base pay of $100,000.00. Their number one request to make their job easier is to streamline the process. Underwriters typically receive a bonus near 5% – 6% of their base paid out annually.

The SBA Packager role focuses on meeting the vendor standards on the secondary market, while Closers focus on meeting internal requirements. Sometimes a small to medium-sized shop will find one person to do both. The Coleman report states that 100% of Loan Packagers receive bonuses, often in the form of per-loan fees that equate to 10% – 20% of their base. On average, SBA (7a) loan packagers are closer to one loan per week.

Recruiting experienced SBA professionals, regardless of the role, is no easy task. All these roles can work productively remotely, which opens the pool of recruits for those companies willing to allow this. Any experienced person will likely demand 110% of the midpoint of the salary range. And any organization serious about its SBA strategy will also likely pay for it.

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