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SBA Loans in Southland Rise 23% to Record Level : Economy: Head of agency's local office says the growth is another sign of the region's recovery.

October 07, 1994|DON LEE | TIMES STAFF WRITER

In another sign of Southern California's economic recovery, business loans made by the Small Business Administration bounced back sharply in the latest fiscal year, surpassing $700 million in the region's six-county area.

Preliminary figures for the 12 months ended Sept. 30 show that the SBA's district offices in Los Angeles and Santa Ana made business loans totaling about $708 million, an increase of 23% from the previous 12 months and slightly more than the record $700 million loaned in 1991-92.

"This past year's figure indicates a strengthening economy," said Alberto G. Alvarado, the new head of the SBA's Los Angeles district office.

Edward Schwarz, president of St. Clair Plastics Inc. in Santa Fe Springs, last month used a $500,000 SBA loan to buy and move into a bigger facility for his growing plastic-injection molding business.

"We were renting in a ratty brick building," Schwarz said. Now, his company is in a newer structure with double the manufacturing space. "We can look outside and see pine trees and lawns." he said. "I feel like we've arrived."

Schwarz's company was one of 1,865 businesses in Southern California to receive SBA loans in the latest 12-month period--up from 1,515 in the previous year.

The federal agency's regular business lending program in Southern California fell sharply in fiscal 1992-93 for the first time during the recession as the region's weak economy and widespread problems with fraudulent loan applications took a heavy toll.

(The loans are completely separate and apart from hundreds of millions of dollars lent after the riots, wildfires and earthquakes as part of the SBA's special disaster loan program.)

In the past year, however, SBA officials have put a tighter check on fraud and introduced a new loan program that cuts down on both paperwork and processing time. Because of that and the strengthening economy, bankers in the region say, they are seeing greater demand and more businesses qualifying for the federally guaranteed loans.

"The economy's improved--that's been one of the driving forces," said David Scherer, senior vice president at Bank of Yorba Linda, whose SBA loan volume surged more than 50% in the past year to about $20 million.

Scherer's bank is among many institutions that have aggressively built up their SBA loan portfolios during the recession years.

The SBA guarantees 70% to 90% of the amount of loans up to $750,000, so banks deem them relatively risk-free.

"Banks are realizing that it is an excellent program for their small-business customer," said Bob Coleman, editor of the Coleman Report, a Pasadena-based newsletter for SBA lenders.

Coleman also attributed the higher SBA loan volume to the SBA's steps to weed out fraudulent loan applications.

False tax returns filed in support of SBA loans have contributed to a high rate of defaults and loan rejections in Southern California, but in the past year the agency has been cross-checking tax forms submitted by SBA applicants against filings with the Internal Revenue Service.

The past year has seen a particular surge in SBA business loans made to acquire property, especially industrial buildings, which banks are reluctant to finance after the real estate slump of the past few years, during which commercial foreclosures soared.

"I'm seeing a lot of real estate purchases," said Kate McCloskey, an SBA loan consultant in Santa Ana. McCloskey, who makes money by helping clients put together SBA loan applications, says her business has more than doubled this year.

"It's just a tremendous upsurge," she said.

Analysts say the SBA's Santa Ana office--despite a big decline in fiscal 1992-93 because of the recession--has been the fastest-growing district in the nation and now ranks ahead of Chicago, New York and Seattle in total loan volume.

Among the businesses that received SBA loans in the past year was Zet-Tek Inc., a dental implant manufacturer in Anaheim.

David Zettler, the firm's president, said he did not think he could get conventional financing to buy a 20,000-square-foot building in Anaheim that would allow him to get out of "sky-high rents" that he was paying. So Zettler turned to the SBA, which approved a loan for $720,000.

"Business has tripled in the last year," he said, adding that his company's sales this year are projected to reach $2 million. The company has added 10 employees, he said, for a total 26. "We feel very fortunate."

Loan Boom An improving economy has created a dramatic increase in the number of loans issued by the Small Business Administration office in Santa Ana. For fiscal years, ending Sept. 30: 1994:

Loans: 752

Amount (in millions): $296.6

Source: Small Business Administration * LOCAL TROUBLES

Los Angeles SBA chief Alberto Alvarado concedes there are problems. D5

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