Live Oak Bank has set a lofty goal for itself in its 2025 fiscal year: to more than double the number of its small-dollar SBA loans.

In the company’s first-quarter earnings call in April, officials said the Wilmington-based bank is setting a target of making more than $250 million in small-dollar business loans, defined as loans of $500,000 or less. These loans are made through the bank’s Live Oak Express, launched in 2023 to streamline small business loans and speed cash to borrowers. Chief Financial Officer Walter Phifer said the bank is beginning to see the benefits of its new small-loan initiative, with Live Oak Express SBA loans representing about 18% of the bank’s total loans sold.

In the call, Live Oak’s president, BJ Losch, called Live Oak Express a “key growth initiative,” thanks, in part, to streamlined processes that make for easier applications and faster decisions.

Kristie Falcioni is the director of Live Oak Express.

“Live Oak Bank has taken several steps to build out our (Live Oak Express) team, and, to gain efficiency, has created rules and responsibilities that make sense for a shorter loan life cycle,” she said. “We’ve invested in and continued to think about automation: being able to add automation to our workflow and having more templated resources for lenders and customers.

“Smaller businesses face limited options when it comes to reasonable lending,” Falcioni said. “There is lots of predatory lending in the space, and not a lot of (borrower) education.” A lot of them don’t know they are bankable. We’re focused on getting the borrower the right loan for the right amount and providing education. Every small business that grows can help its community and hire more people.”

Although a central part of the Small Business Administration’s mandate is to encourage U.S. lenders to put money in the hands of smaller entities, most loans are made in larger amounts to larger companies. Since banks spend roughly the same amount of time and effort – and thus expense – making small loans as making large loans, their preference is often to make large loans. The average SBA-backed 7(a) loan was just over $700,000. Since the agency began promoting the smaller loans, it states that the average has fallen: Last year’s average 7(a) loan was about $443,000.

“Live Oak has always wanted to get into the small loan business, but it takes a lot of effort to do small-dollar loans,” said Mike McGinley, head of small business banking for Live Oak. “In 2023, the Biden Administration made it easier to make (such) loans through the SBA platform. It also relaxed rules on document collection and underwriting. We stayed prudent with underwriting, but relaxed some of our rules that did not add risk.”

Because Live Oak is a top SBA lender and has a long history of working with the SBA, the bank had “clear policies and guidelines” for its agency-related lending, balancing speed and efficiency with maintaining lending standards, Falcioni added.

Keeping those standards was fortunate. The SBA’s relaxed requirements boosted many small businesses but resulted in higher losses for the agency. So earlier this year, the Trump administration tightened the program’s underwriting standards to guard the long-term sustainability of the program, McGinley said, adding that Live Oak Express did not need to adjust because it had not changed its underwriting policies.

“If you keep the same standards, you can pretty much keep what you are doing,” he said.
Live Oak Bank’s model of lending within specific researched industries has helped it begin marketing its small-dollar loans, according to Falcioni.

“We have the benefit of a great brand, especially within the traditional verticals we operate in,” she said, adding that Live Oak Express is arming its sales force with materials that advertise the program. It created its own website within the larger Live Oak website and has fine-tuned its online presence.

Meeting the smaller-dollar needs of small businesses has been good for Live Oak Bank’s growth.

“The small-dollar borrowers are also opening deposit accounts with us. We bring in customers and grow with them,” said McGinley, adding that making small-dollar loans available allows Live Oak Bank to serve the local market better since Southeastern North Carolina has a limited number of very large companies.