Andrew Fabry knew he and his partners were onto something good when they opened the doors of Badger State Brewing in 2013.
Part of a resurgent wave of interest in craft and locally produced beer, Badger State soon found the demand for its brews was outstripping its capacity. Not only did the company need to find a way to make more beer, it needed equipment to can it, package it and take advantage of the opportunities to expand its taproom and other amenities.
It was time for a serious visit with the local banker. Working with the Bank of Luxemburg and the Small Business Administration, Badger State Brewing secured more than $700,000 to help finance its expansion.
“We’ve gone from about 1,200 square feet to 28,000 square feet,” says Fabry, president and co-founder of Green Bay-based Badger State Brewing. “It’s really humbling, sometimes, when I sit here after close, to think how fast we’ve grown.”
Not only will the expansion lead to more capacity, it will also mean more jobs at the growing brewery. Badger State is among the thousands of businesses in Wisconsin that have used the SBA lending programs to start a new business, purchase a building, or finance new equipment or business expansions through the popular 7a lending program.
Designed specifically for small business — loosely defined by revenue and number of employees — the program works with borrowers and banks where the SBA provides a guaranty of a percentage of the loan, reducing the risk for banks and allowing them to finance businesses that are less established or have a greater risk.
“They tend to be pretty flexible with the terms that are required,” says Eric DeJardine, vice president of commercial banking with Nicolet National Bank, which participates in the preferred lender program, allowing it to conduct its own underwriting for greater flexibility and speedier approvals. “We are always looking for sound fundamentals, but we are a relationship bank and want to help our customers.”
In 2016 alone, the SBA 7a lending cap was $26.5 billion, and both the banks and small businesses based in the New North region have been active players. According to SBA loan data, 298 loans were approved under the 7a program for small business projects in the New North’s 18 counties. All told, those loans represented nearly $130 million of capital injected into the region.
Since 2010, businesses in Northeast Wisconsin have borrowed more than $1 billion though the program, financing more than 2,700 small business projects throughout the region and creating an estimated 38,000 jobs, according to loan data from the SBA. Statewide, the 7a program helped finance nearly $3.9 billion for more than 11,500 projects, according to the data.
But the data for Northeast Wisconsin also shows declining participation in the program the past several years. The 7a program experienced its highest volume of the past seven years in 2010 and 2011, and has generally seen its participation rates decline since then.
It could easily be argued 2010 and 2011 represented pent-up demand following the Great Recession, and that loan volume the past few years may be more representative. But there are also competitive factors at play, and the SBA loan program is not always the best option for small business owners.
“We try to look outside the box when it comes to putting together financing that makes the most sense,” DeJardine says. “We want to have a healthy mix of options, whether that is SBA or non-SBA, in the scheme of things we offer.”
In addition to the traditional banks, small business owners and entrepreneurs have access to other lending sources, though there are caveats. The online business lending industry has exploded, and it has seen success in offering a streamlined, online application process with approval in just a few hours. These lenders are not regulated in the same ways as banks, however, and borrowers who are not careful can find themselves facing rates and fees above 30 percent.
Another part of the decline may be age-driven. Nearly 25 percent of new entrepreneurs are baby boomers nearing retirement who have elected to start their own businesses instead. Many have sizeable 401(k) accounts they can access to finance new ventures or expansion.
While the volume may have declined the past few years, DeJardine says the SBA 7a program still plays a key role in the options available to small businesses looking to start up or expand.
“We like to include it in our cornerstone offerings,” he says. “We certainly want to bolster the use of the program where it is appropriate. We are open to feedback on that and always try to keep the lines of communication open.”