Dr. David Westerberg had the chance to buy into a cosmetic dentistry practice in Palm Desert but found that the credit crunch had chipped away his ability to find money through conventional small-business loans or by tapping his home equity.
Although his house value had gone up, the appraiser was having a tough time finding comparable houses that also had become more valuable.
"The market has changed," said Westerberg, who already burnishes smiles at a San Bernardino practice. "I found that [bankers] weren't as willing to lend and it had become much more stringent."
So Westerberg joined the growing crowd turning to the Small Business Administration for borrowing muscle. As tightening credit rules shut more small-business borrowers out of home equity loans or conventional bank credit, many are seeking loans backed by the SBA.
"We have seen a huge influx of transactions" in the last 30 days, said Roberto Barragan, president of the Valley Economic Development Corp., which connects borrowers with banks authorized to make SBA-guaranteed loans.
Access to capital is crucial for small-business owners like Westerberg, who landed an SBA-backed loan a few weeks ago from Comerica Bank.
These loans, which are issued by banks that team with the SBA, are typically more expensive for borrowers. But they are easier to get than conventional loans because they don't require the same level of credit scores or collateral, an asset such as equity in a house that is pledged to a lender. They also often offer a longer time period in which to pay back the loan.
That's good news for small-business owners struggling to find funds. Many have been stymied by the loss of borrowing power inflicted by falling housing prices and rising mortgage interest rates.
Banker Tim Weaver, who runs the SBA loan guarantee program at California Oaks Savings Bank in Simi Valley, has seen a jump in demand for SBA-backed loans at his community bank as the turmoil in the mortgage markets has spread beyond sub-prime borrowers with shaky credit.
"We are getting the reverse effect of the sub-prime market," he said.
New business owner Gunther Donoso recently turned to the SBA when other options lost their appeal. He was approved for a $35,000 SBA micro-loan through the Valley Economic Development Corp. to open Brownstone Pizzeria in Eagle Rock.
