Number of SBA Loans Increases Over Last Year

The number of Small Business Administration (SBA) -backed loans made by financial institutions serving the Valley increased in the first quarter of fiscal year 2010 (the period from Oct. 1, 2009 to Dec. 31, 2009) compared to the same period a year ago. A total of $71,741,100 in 7a and 504 loans were made in Q1 2010, compared to $46,742,100 in Q1 2009. The number of loans increased from 113 to 148. And the average of the gross amount of loans increased from $413,647 to $484,737. SBA lenders said the increase was fueled by small businesses moving forward with expansion plans and the SBA waiving fees and upping its loan guarantee percentages. But numbers are still low and stiff underwriting criteria remain a stumbling block. “I think the biggest incentive has been that the SBA increased its loan guarantees on 7a to 90 percent and waived fees for both 7a and 504 loans,” said Roberto Barragan, president of the Valley Economic Development Center. “Some businesses can save tens of thousands of dollars with the waived fees.” A lot of business owners shied away from pursuing financing in 2009 to see what was going to happen with the economy, said Barragan. Now, many of them are back in the game. And the secondary markets for loans are coming back. San Fernando Valley Small Business Development Corporation made a total of seven SBA-backed loans in fiscal year 2009 worth $3.9 million. It made one loan for $452,000 in Q1 2010. There are more people pursuing 7a loans to start new businesses, said Barragan, and the agency has millions of dollars in loans that have been pre-approved. Activity for 504 loans, which are often used for purchasing commercial real estate, is still uncertain because some buyers are waiting for property values to drop further. “I’m getting an increasing number of loan requests from businesses thinking about expansion,” said Timothy Weaver, senior VP of Celtic Bank Corporation, adding 12 months ago people were nervous and activity started picking up in the past few months. The SBA waiving fees and upping its loan guarantee percentages are fueling demand, he said. And the Obama administration talking about spurring small business lending over the past couple months is encouraging a lot of businesses to apply. But, some businesses have struggled financially over the past year and simply do not qualify for loans. And while bankers want to lend, they are dealing with increased pressure from regulators to not make risky loans. “Bankers are caught in the middle,” said Weaver. “A record number of banks have been closed by regulators, and the number one reason for them being closed is that they’ve made bad loans.” Weaver can tell through an oral interview if a business will qualify for an SBA loan. The key questions are whether the business is making money or losing money, the amount of collateral the owner is putting up, and whether the borrower has good personal credit. Still off mark SBA lending is going in the right direction, said Alberto G. Alvarado, director of the Los Angeles District Office of the SBA, but numbers are still off the mark from a couple years ago. The total number of SBA-backed loans in L.A., Ventura and Santa Barbara counties was 6,200 worth $1.2 billion in fiscal year 2007. In fiscal year 2009, there were only 1,747 loans worth $674.4 million, he said. Alvarado attributes the uptick in Q1 2010 to the 2009 Recovery Act, because it allowed the SBA to waive fees and increase guarantee percentages. The SBA’s provisions are set to expire in February, but there’s a bill before Congress to extend and expand the program. “These programs have proven to be very popular,” said Alvarado. Antonio Zate of Wells Fargo Small Business Lending is seeing an increase in activity from start-up companies and those looking to expand. He echoes other lender’s statements that the Recovery Act has had a huge impact on lending activity. “The leading source of small business loans in the marketplace right now is SBA,” said Zate. Wells Fargo also continues to provide conventional business loans and has divisions that work with companies in the $2 million and up categories. Zate is also seeing a number of customers who are not in a position to borrow right now. In those cases Wells Fargo tries to direct them to other sources of financing and programs that will prepare them to be presentable for an SBA loan in the future. SBA Loan Programs 7(a) Loan Program: This is SBA’s primary and most flexible loan program, with financing guaranteed for a variety of general business purposes. It is designed for start-up and existing small businesses, and is delivered through commercial lending institutions. The major types of 7(a) loans are: Express Programs; Export Loan Programs; Rural Lender Advantage Program; and the Special Purpose Loans Program. CDC/504 Loan Program: This program provides long-term, fixed-rate financing to acquire fixed assets (such as real estate or equipment) for expansion or modernization. It is designed for small businesses requiring “brick and mortar” financing, and is delivered by CDCs (Certified Development Companies) — private, non-profit corporations set up to contribute to the economic development of their communities. Microloan Program: Provides small (up to $35,000) short-term loans for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery and/or equipment. It is designed for small businesses and not-for-profit child-care centers needing small-scale financing and technical assistance for start-up or expansion, and is delivered through specially designated intermediary lenders (nonprofit organizations with experience in lending and technical assistance). Disaster Assistance Loan Program: Provides low-interest loans to homeowners, renters, businesses of all sizes and most private non-profit organizations to repair or replace real estate, personal property, machinery and equipment, inventory and business assets that have been damaged or destroyed in a declared disaster. (Source: SBA)