Is your company seeking capital? Maybe you should join Sam’s Club. The warehouse shopping centers, a division of Wal-Mart Stores Inc., have announced the test launch of a small-business loan program in partnership with Superior Financial Group LLC. Qualified small business members of Sam’s Club will be eligible for loans of $5,000 to $25,000 from Superior Financial.
Sam’s Club said the program will focus on serving “Main Street minority-, women- and veteran-owned small businesses as well as micro-entrepreneurs.” Sam’s Club appears to be onto something. According to a survey conducted by the company, and reported by Bloomberg Businessweek, nearly 15 percent of Sam’s Club business members said they had been denied a loan during the month of November 2009.
That was an increase from 12 percent in April. Sam’s Club also cited statistics from the National Federation of Independent Business that just half of U.S. small businesses that sought loans in 2009 got all or most of the money they needed. Under the lending program, businesses that pay the $35 annual fee for a Sam’s Club business membership are eligible to apply for loans online.
During the pilot phase they will get a discount of $100 off the application fee, as well as an annual interest rate of 7.5 percent for 10 years. The provider in this case, Superior Financial Group is based in Walnut Creek, California, and licensed by the U.S. Small Business Administration as a non-bank lender.
Superior is one of just 13 federally licensed nonbank lenders approved to make SBA-guaranteed loans. In fact, last year Superior reported that it was the top SBA lender in the nation, producing 2,690 SBA (7a) loans totaling $27.1 million to during the SBA’s fiscal year October 1, 2008 to September 30, 2009.
Wal-Mart tried to open a bank back in 2007, but was derailed when the House of Representatives passed laws preventing non-financial firms from operating banks. However, Wal-Mart’s U.S. stores do provide some financial services, such as check cashing.
Doing Business with the Enemy?
Although Wal-Mart has often been portrayed as the enemy of small businesses – driving mom-and-pop retailers out of town with their low prices, the move makes good sense for Wal-Mart and its divisions. By enabling business owners to grow their companies, the loans could spur demand for business products and services that the retailer could offer at Sam’s Club.
So, are these loans a good thing? It depends on whether you have a long-term or short-term point of view. On one hand, for example, this sounds pretty rosy — like Mom and apple pie. Who could argue about giving small businesses loans at reasonable interest? If you are having trouble getting credit elsewhere, you definitely may want to take advantage of these loans.
However, keep in mind the limitations when working with a “non-bank lender.” As a small business with a long-term perspective, you will want to develop a good strong relationship with your banker.
A relationship with a local branch of a large bank or a small community bank brings support for a growing business in a number of ways: products and services that can help you scale your business cost effectively and efficiently, and access to personalized advice on financial issue. As Mary Patton, a commercial banker with FirstMerit Bank says, “the more familiar your banker is with your company, the more proactively he or she will be able to provide solutions and be there for you when an unforeseen event occurs.”
As a nonbank lender, Sam’s Club’s Superior Financial won’t be able to provide you with a full range of banking products such as checking accounts, electronic funds transfer, and other banking resources to help you grow and meet your business goals.
If you are thinking ahead for your business, start developing a close relationship with a full-service bank that can benefit your business in multiple ways, with loans being just one of those ways. Think beyond just the loan you want today.
Editor’s Note: This article was previously published at OPENForum.com under the title: “Sam’s Club Getting Into Small Biz Lending” It is republished here with permission.
Anita, I always appreciate how you paint a clear picture of what this means to me, to other small biz owners. Bank lender vs Non bank lender. The importance of a relationship matters (maybe it used to matter with so many banks folding today) in most circumstances. I had a loan go through years ago on a real estate project (way before this current crisis) based on my relationship with the bank and key staff there. I had built a reputation and had their trust that no matter what I would pay back the loan. It made the difference for me and my small co at the time.
I’d be curious to hear how many Small Business Owners have had a loan or financial something fixed or helped by a relationship. Now, I’m not suggesting that a banker can pull you out of hot water you’ve gotten into, but has a relationship helped move a transaction forward — loans, financing arrangements, etc.
I’m a non-bank lender. Our business exists because banks aren’t always able to help small businesses with a loan even though the business has a strong relationship with the bank. Non-bank lenders can often be much more flexible than a bank.
Wow! I would never have guessed that Wal-Mart would get into small business loans, but I’m sure we’ll hear some success stories come out of this (and some failures too). Keep us posted on the results.
While I think that it’s a brilliant business move for this Wal-Mart offshoot, I don’t really feel that it’s a game-changer.
Now, maybe there are some small businesses that need really small loans. I tend to believe that the small businesses who really need help, need a heck of a lot more than $25,000.
Lots of businesses are hurting, so maybe a small loan like this can save a few. That would be great.
It’s too bad that they can’t or won’t loan up to $100,000. That could be a game-changer. There would be lots of interest.
The Franchise King
It is interesting to see how new players entering the financial market. Sam’s Club must have important data about the purchasing behavior of small businesses and could then use this information for their new type of service.
I remember a few years ago hearing that Wal-mart was trying to start a bank in my home state (Utah). I knew the idea was shut down by the feds but it seems Wal-mart is still going to find a way around that.
In regards to the argument by the banker that a non-bank lender won’t be able to provide things like a checking account, she is correct. The biggest problem however isn’t getting a checking account – it is getting a loan. Unfortunately banks don’t have an effective way to deliver this type of capital to Main Street, and they use personal credit score to judge small businesses. This is why perfectly healthy businesses are turned down every day by banks because their personal credit score isn’t 720.
@ Joel – you’d be amazed at how many Main Street businesses are in need of $10-$25k. Whether it is $10k for a small retailer to buy holiday inventory or $25k for an auto repair shop to get a new piece of equipment, we see a huge and growing demand for this type of loan.
I know that lots of small businesses are hurting.
Maybe a $10k loan would be a game-changer for them.
Or, it could just sink them into more debt.
Little loans like that are not the answer for most small businesses right now, though.
The Franchise King