North Bay Business Journal

Monday, August 24, 2009, 4:55 am

SBA lending fails to see upturn


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    Despite aggressive 90% guarantee limit, fee waiver, loans fall

    Michael Rice and Mark Quinn

    Michael Rice and Mark Quinn

    NORTH BAY – Even with aggressive new rules for Small Business Administration loans intended to increase lending, the program hasn’t delivered the punch it intended.

    In March of this year, the SBA announced an extension of its program as part of the federal recovery act. The recovery act allotted $730 million to the SBA to go toward five programs.

    There was $375 million set aside for temporary fee eliminations on SBA loans as well as an increase of guarantee limits from 75 percent to 90 percent. Also, there was an expansion of the microloan program and a program called the American Recovery Capital that enables banks to make 100 percent guaranteed loans for struggling business owners for up to $35,000.

    This was all created to help stimulate lending and help small businesses survive the economic downturn.

    Instead, SBA loans are down. In the greater San Francisco District, where there were 3,000 SBA loans made in 2007 and 2,000 in 2008, there are only 1,300 this fiscal year, which ends in September.

    “We are still significantly below where we have been in prior years,” said Mark Quinn, district director of the SBA in San Francisco.

    He said the low point was in February, right before the recovery act was passed.

    Since then, he said there has been a leveling off.

    “We are flat,” he said, and continued hopefully, “And in today’s market, flat is the new up.”

    Bankers and officials attribute the lack of lending to both the depressed confidence of businesses that might otherwise borrow and regulatory pressure on banks to be very cautious with their lending.

    Of the banks in the North Bay that make SBA loans, Redwood Credit Union, Sonoma Bank, First Community, Circle and Tamalpais Bank have led the pack. However, this fiscal year to date, there has been a significant drop off in total loans made.

    This fiscal year, $43.3 million in SBA loans have been made in the North Bay. Sonoma County is responsible for $25.9 million, Napa for $6.6 million and Marin for $10.8 million. That is just a little more than half the $78.4 million lent last year. Redwood Credit Union and Circle Bank are the exceptions, but other than those two institutions, lending is down across the board.

    Redwood Credit Union just started making SBA loans last year and is leading the North Bay in both number of loans and amount lent.

    It has made 15 SBA loans this year for a total of $6.9 million. It attributes the new program’s elimination of the borrower’s fees to the success of the number of loans made.

    “The elimination of fees seems to be more of an impetus than the increase in guarantee. The cost savings that companies get from the fee elimination can be significant, and has definitely been a big factor in the increase,” said Jason Ehn, senior SBA loan officer of Redwood Credit Union.

    Tamalpais Bank has stopped making SBA 7a loans but does intend continue to make SBA 504 loans. It is, however, according to its new business model, only making those loans in Marin County and the very close surrounding area.

    Circle Bank has made seven loans, Sonoma Bank has made two and First Community has made two.

    Last year, Tamalpais made eight, Sonoma Bank made five, First Community made eight and Redwood Credit Union and Circle, the only ones to increase lending this year, made four and six, respectively.

    As for the American Recovery Capital program, many national banks and some community banks are not offering it at all due to the cost of training for what they see as a one-time short-term program.

    According to Mr. Quinn, what the ARC program can do for a business is keep a loan out of default, which benefits the banks as well.

    If a business has a $100,000 loan and is seeing a drop in revenue, the bank can make the $35,000 loan to the business. This is backed 100 percent, and the business can put it to the loan, bringing the principal loan to $65,000. The borrower doesn’t have to pay for a year and a half.

    It helps keep the loan current so the bank can keep a clean balance sheet, but it is still expensive, Mr. Quinn said.

    “One hundred percent is great, but they have to service it right,” he said.

    This is one area that makes SBA loans difficult and expensive. He likened it to an insurance policy. The loan is only guaranteed if it has been serviced correctly, much like insurance is paid only if the guidelines are followed.

    “SBA tends to have a higher risk factor and a greater degree of administration,” said Circle Bank Senior Vice President and Business Lending Manager Michael Rice.

    But he thinks that things are changing in a positive way.

    “SBA lending is down the first two quarters 30 percent,” he said. “But it is up since they passed the legislation.”

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    1. August 24, 2009, 6:03 am

      by Neal Gordon

      The SBA ARC Loan program continues to be problematic for many struggling small businesses as this program has evolved in unexpected ways compared to what was touted when it was launched. The loan amount is too small to help many businesses (Ask Congress why they thought this would be enough). The amount of documentation is nearly the same as is needed for a $1million loan. And the biggest issue that borrowers are facing is finding a lender who will loan to them, which is based on the type of qualifying debt that applicant has. So even if a business is qualified, it is far from automatic that they get a loan. As the article intimates, banks are wary and the debt they “prefer” are the term loans, notes and capital equipment leases, because the borrower can’t draw back on them once the ARC Loan pays off that debt.

      My company, Business Borrowers Alliance, is continuing to contact the banks that have been named as participants to learn what their specific requirements are and most continue to only want to do ARC Loans for only their customers that specifically have loans at their bank.

      For more information, contact us at 866-944-3866 or mail@businessborrowersalliance.org

      Neal Gordon
      We provide direct assistance and help to businesses throughout the complete ARC Loan application process.

    2. August 24, 2009, 4:25 pm

      by Nancy

      The SBA loan program is a joke! A few years ago I was looking for financing for the company my husband started. Every SBA lender in this area told me to take a second on my home rather than even try for an SBA loan. No wonder SBA loans are “down”. No one can get one and the lenders don’t support them!

    3. February 16, 2010, 2:59 pm

      by Harry

      Ah! I’m so glad this was poste| There have been a mass of contradictary
      information out there, this dispells, puts to rest
      most of what I’ve read.

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