Community Developments Investments (November 2013)

Promoting Economic Development With the SBA's Small/Rural Lender Advantage Initiative

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By Thomas Dolson, Chief Executive Officer, Peoples National Bank NA

Crossroads Coffee owner Daniel Gentz, left, brought high-end coffee to rural Carterville, Ill., with financial help from Peoples National Bank (PNB) and the SBA’s Small/Rural Lender Advantage initiative. At right is Les Lange of PNB.

Crossroads Coffee owner Daniel Gentz, left, brought high-end coffee to rural Carterville, Ill., with financial help from Peoples National Bank (PNB) and the SBA's Small/Rural Lender Advantage initiative. At right is Les Lange of PNB. (Peoples National Bank)

Peoples National Bank NA (PNB) is a locally owned community bank headquartered in Mount Vernon, Ill., with 18 banking locations throughout southern Illinois and the St. Louis, Mo., metropolitan area. PNB has been serving these predominantly rural areas for more than 100 years with a diverse line of lending products, including farm, agriculture, residential, commercial real estate, and commercial loans. By focusing on relationships, products, services, and community investment, PNB has become a market leader in the communities we serve.

Our branches are generally in small towns, ranging in population from 5,000 to 50,000. PNB has total assets of $881 million, with total loans of $662 million. Our target market includes households with incomes between $30,000 and $100,000. The median household income for this geography is about $38,000, and the unemployment rate is about 9 percent. The primary industries are agriculture and manufacturing. Many of these small towns are facing the challenges of population loss, economic dislocation, and high unemployment.

We offer customers the benefits of a smaller, locally owned bank with a wide range of products and services. We have found success serving our communities with the assistance of the Small/Rural Lender Advantage initiative. This initiative is part of a broader U.S. Small Business Administration (SBA) initiative to promote the economic development of rural communities. Because the Small/Rural Lender Advantage initiative is flexible, it has helped keep businesses in communities and local people employed.

PNB entered into an agreement with the SBA in 1994 to begin using the agency's guaranteed lending programs. As part of the SBA's flagship 7(a) Loan Program, the Small/Rural Lender Advantage initiative focuses on smaller loans than those offered by a traditional SBA loan. This initiative is geared toward banks that originate fewer than 20 such loans in a fiscal year. PNB has originated about 10 SBA loans per year in the past several years.

The Small/Rural Lender Advantage initiative includes a streamlined and more user-friendly 7(a) process for loans less than $350,000. The application is one page for very small loans, with key, but limited, additional information required for loans above $50,000. The SBA guarantees 85 percent of loans of $150,000 or less and 75 percent of loans greater than $150,000. Loans are centrally processed through the SBA's Standard 7(a) Loan Guarantee Processing Center, with routine loans processed within three to five days.

The underwriting standards at most community banks limit exposure to start-up businesses. Banks typically also limit exposure to loans in leasehold improvements or specialized collateral, such as restaurant or fitness equipment. Additionally, banks often require businesses to demonstrate that their operations have generated consistent cash flows in their most recent years. A start-up business typically requires a different loan structure than otherwise offered by a bank's traditional underwriting standards. In particular, a loan to a start-up business may require interest-only payments for a selected period or extended terms improving the cash flows of the business relative to its debt service requirements. The Small/Rural Lender Advantage initiative provides the combination of a loan guarantee and flexibility in loan structure that allows banks to mitigate credit risk. This initiative has been instrumental in facilitating loans to start-up businesses that do not comply with traditional underwriting standards.

Financing Nontraditional Loans

PNB has used the Small/Rural Lender Advantage initiative for start-up businesses pledging specialized collateral. For example, we used this initiative to lend to a start-up coffeehouse, a fitness company, a farm equipment sales company, and a plumbing business.

Keyser Enterprises, founded in 2004 by brothers Jesse and Charles Keyser, benefited from Small/Rural Lender Advantage. To open their first pizza franchise, the Keyser brothers were required to obtain bank financing for the cost of leasehold improvements and equipment, along with working capital. Because of the nature of the business and general lack of collateral, conventional bank financing was difficult to obtain. That's why PNB turned to the Small/Rural Lender Advantage initiative to help the Keysers.

The Keysers opened their first location in Marion, Ill., in 2004 and have since expanded to other Illinois locations—Carbondale, Herrin, and Harrisburg—and to Murray, Ky. More recently, after researching several business opportunities, they chose to open Sport Clips franchises in Marion and Carbondale, Ill. Again, PNB provided the financing with SBA assistance. The initial two stores have proved to be very successful, and business continues to grow.

The Keysers started with five employees and now employ nearly 120 people, all of whom live in communities experiencing relatively high unemployment. The Keysers' businesses are well managed and well marketed. This success, however, would not have been possible without the help of the Small/Rural Lender Advantage initiative.

LMB Equipment Corporation (LMB) is another example. LMB is located in downtown Galatia, Ill., a rural community struggling with high unemployment. Galatia is in southern Illinois with a population of about 500 people. The primary industries in this area include coal mining and agriculture. LMB's owner, Justin Ferrell, buys and sells farm equipment and other heavy equipment on a wholesale basis.

LMB has experienced rapid growth, with sales volume doubling every year since 2009. This sales increase, along with a rising cost of inventory due to increasing demand, strained working capital. The risks associated with specialized collateral and unstable cash flows made it difficult for banks to finance the operation using conventional lending products. PNB used the Small/Rural Lender Advantage initiative in June 2010 to provide LMB with the capital needed to purchase inventory and fund its growth.

The Small/Rural Lender Advantage initiative's funding allowed LMB to renovate and expand its building and improve the land it uses to store inventory. LMB is now a thriving business, bringing customers from all over southern Illinois and employing two full-time employees and two part-time employees. Galatia, with various convenience stores and restaurants, benefits from the increased traffic.

In addition to helping Keyser Enterprises and LMB, PNB has used the Small/Rural Lender Advantage initiative for a business that completed a sale of the company from current ownership to the employees; helped a local business owner sell his company to an existing experienced employee; and facilitated a change in ownership while helping the business retain all the employees.

In mid-2012, PNB used the initiative to make a loan to Daniel and Lisa Gentz for the purchase of Crossroads Coffee, in Carterville, Ill. The Gentzes came to PNB because they have an existing banking relationship with us. Crossroads Coffee's existing business operator had insufficient financial records, so PNB had to consider the transaction as a start-up business in an industry that is very difficult to finance. We approved the loan because of the couple's unique skill set, other income, and PNB's ability to utilize the loan guarantee. Under the Gentzes, Crossroads Coffee has continued to grow and now offers an enhanced breakfast, lunch, and dinner menu in addition to serving high-end coffee. Currently, the business employs three people, with another part-time employee expected soon.

How PNB Partners With the SBA

PNB has a dedicated staff for guaranteed lending programs. Our staff stays current on all changes to various guaranteed lending programs. We provide lenders in all our branches with support, advice, experience, and expertise in these programs and develop the very best financing structure for our customers. The guaranteed lending programs staff has been instrumental in training and sharing knowledge with other PNB departments, including commercial lending and loan operations.

In addition to the Small/Rural Lender Advantage initiative, PNB uses:

  • the SBA 7(a) Loan Program for projects up to $5 million;
  • the SBA Express Program for an accelerated turnaround time for the SBA's review;
  • the Patriot Express Program for veterans and members of the military community wanting to establish or expand small businesses; and
  • the Certified Development Company/SBA 504 Loan Program for long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization.

As SBA lending programs have evolved, the review and underwriting of banks' lending applications have been enhanced. The SBA has developed centers throughout various regions to help review banks' lending applications, and the agency markets the programs to banks not participating in the program. The SBA's regional staff provides technical assistance, support, and training on each SBA program. There is an SBA regional office in our market that is very interested in assisting PNB to make loans in the rural areas of the communities we serve. The office responds to all of our needs and is staffed with experts on various solutions and products for our customers.

Because this program has worked so well, PNB will continue to use it, in conjunction with the numerous other SBA programs, to meet our customers' needs.

For more information, contact Thomas Dolson at (618) 241-6500 or

This publication is part of:

Collection: Community Developments Investments

Deputy Comptroller
Barry Wides

Staff Writers
Ted Wartell
Bill Reeves
Letty Ann Shapiro
Dianne Davenport

For questions or comments, call (202) 649-6420 or email This and previous editions are available on the OCC's website at

Articles by non-OCC authors represent the authors' own views and not necessarily the views of the OCC.

Deputy Comptroller
Barry Wides

Editorial Staff
Ted Wartell
Bill Reeves
David Black
Dan Gibbard

Design Staff
Rick Shacklette
Cheryle Robison

For questions or comments, call (202) 649-6420 or email This and previous editions are available on the OCC's website at

Articles by non-OCC authors represent the authors' own views and not necessarily the views of the OCC.