Overview

• Newtek Small Business Finance LLC, one of 14 non-bank U.S. Small Business Administration-licensed small-business lending companies, is a wholly owned subsidiary of Newtek Business Services Corp.; and Newtek Small Business Lending, which provides third-party small business loan servicing, is a wholly owned portfolio company of NBSC.
• We affirmed our overall AVERAGE rankings on Newtek Small Business Finance LLC as a commercial finance business-based primary and special servicer.
• We also affirmed our overall AVERAGE rankings on Newtek Small Business Lending as a commercial finance business-based primary and special servicer.
• The outlook on each ranking is stable.

CENTENNIAL (S&P Global Ratings) May 19, 2021--S&P Global Ratings today affirmed its AVERAGE rankings on Newtek Small Business Finance LLC (NSBF) and Small Business Lending LLC (d/b/a Newtek Small Business Lending [NSBL]) as commercial finance business-based primary and special servicers. The outlook on each of the rankings is stable.

NSBF, one of 14 non-bank U.S. Small Business Administration-licensed small-business lending companies, is a wholly owned subsidiary of Newtek Business Services Corp. (NBSC); and NSBL, which provides third-party small business loan servicing, is a wholly owned portfolio company of NBSC. NBSC is an internally managed business development corporation and, along with its subsidiaries and portfolio of companies, provides business and financial solutions to small- and medium-sized businesses.

Our rankings reflect NSBF and NSBL's (collectively, Newtek):

• Substantial experience servicing loans under the U.S. Small Business Administration (SBA) 7(a) loan program;
• Comprehensive servicing platforms and successful track records within their market niches;
• Seasoned and well-tenured senior and middle management;
• Training programs that primarily include on-the-job-training, along with a relatively low training hour mandate;
• Effective technology to meet servicing requirements, including a continued focus on technology enhancements to further streamline and automate servicing tasks;
• Absence of formal internal audit programs; and
• Proactive management of the resolution of nonperforming loans.

Since our prior review of NSBF and NSBL (see "Servicer Evaluation: Newtek Small Business Finance LLC and Newtek Small Business Lending" published July 11, 2019), the following changes and/or developments have occurred:

• NSBF and NSBL's combined loan portfolio has more than doubled in unpaid principal balance (UPB) and the number of assets increased more than four-fold;
• As a result of the uncertain economic impact to U.S. small businesses created by the COVID-19 pandemic, Newtek temporarily shifted NSBF's focus from originating SBA 7(a) loans to originating Paycheck Protection Program (PPP) loans beginning in March 2020, funding over 10,500 PPP loans for a total UPB of $1.2 billion during 2020;
• In January 2021, NBSC closed a $115 million public offering of 5.50% notes due 2026;
• In 2019, an executive vice president (EVP) with over three decades of industry experience was hired to run NSBL's day-to-day operations;
• In 2019, a credit manager with over two decades of industry experience was hired to direct NSBL's credit underwriting activities;
• The senior vice president of credit operations left NSBL in August 2020 and his duties were absorbed by the EVP;
• The senior vice president of risk and operations left NSBL in May 2020, and the position was filled internally through the promotion of an employee with extensive commercial lending and servicing experience;
• In response to growth and activities in its portfolios, Newtek hired a total of 21 employees, including three liquidation officers and three portfolio managers;
• Newtek upgraded its policies and procedures (P&Ps) manual to include specific sections dedicated to portfolio servicing and monitoring, and loan workout and liquidation procedures, as well as providing detailed information for new hires unfamiliar with standard practices; and
• Newtek implemented a training and development plan with a focus on keeping employees trained on updated governmental regulations and company P&Ps.

Our rankings consider the same factors for each of NSBF and NSBL because they share the same servicing platform and are only distinguished by their respective portfolio and servicing clients, with NSBF only permitted to service SBA 7(a) loans that it originates. NSBL, which was formed in 2000 and merged into its present ownership in 2016, was established to service third-party loans, including SBA 7(a) and 504 loans. The 7(a)loan program, the SBA's most common loan program, includes financial help for small businesses with special requirements. The uses of proceeds include: the purchase, expansion/renovation, and new construction of real estate; short- and long-term working capital; the refinance of current business debt; and the purchase of furniture, fixtures, and supplies. The 504 loan program provides long-term, fixed-rate financing for the purchase of major fixed assets that promote business growth and job creation, and are available through Certified Development Companies (CDCs), SBA's community-based partners who regulate nonprofits and promote economic development within their communities. CDCs are certified and regulated by the SBA.

NSBF has demonstrated continuous portfolio growth since its parent company converted to a business development company in 2014, servicing over 12,000 loans aggregating approximately $2.8 billion in UPB as of Dec. 31, 2020. At the same time, for each of the years ending Dec. 31, 2016 through Dec. 31, 2018, NSBL experienced a decline in its portfolio. In 2019, management implemented a strategic initiative to grow NSBL's portfolio of third-party business. As a result, NSBL has experienced relatively recent growth in its portfolio to reach approximately 1,300 loans aggregating $474 million UPB at Dec. 31, 2020, up from 688 loans aggregating $160 million UPB as of our prior review.

The outlook for each ranking is stable. Newtek, like most servicers, has been challenged by increased workloads associated with relief requests from borrowers facing economic difficulties due to the COVID-19 pandemic, particularly following a prior benign default environment. This includes NSBF's involvement as an authorized lender in the PPP, in which it funded over 10,500 loans totaling $1.2 billion UPB. Newtek has responded to the challenges by implementing the technology needed for its employees to work remotely and leveraging resources to handle relief requests. As a result, we believe that Newtek will remain a highly effective servicer based on its long history of small business lending and small business loan servicing experience. Newtek has enhanced its controls since our prior review as demonstrated by its upgraded P&Ps; however, we believe that other factors--such as lacking an internal audit program and a limited formal training program--are not in line with those of higher-ranked servicers.

The financial position is SUFFICIENT.

Related Research

• Select Servicer List, April 2, 2021
• Servicer Evaluation Spotlight Report: Environmental, Social, And Governance Factors Have Consistently Powered Our Servicer Evaluation Rankings, Nov. 16, 2020
• U.S. Commercial Mortgage Servicers Preparing For Impact From COVID-19, April 3, 2020
• Servicer Evaluation: Newtek Small Business Finance LLC And Newtek Small Business Lending, July 11, 2019
• Analytical Approach: Global Servicer Evaluations Rankings, Jan. 7, 2019