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SBA loans are on the rebound

The number made in Southern California from April through September rises 50% from the previous six-month period.

October 27, 2009|Cyndia Zwahlen

After crashing to record lows earlier this year, small-business lending in Southern California may be on the mend, though the number of loans is still down sharply compared with recent years.

Lenders made 2,000 local loans backed by the Small Business Administration from April through September, a 50% increase compared with 1,330 loans made in the first half of the government's fiscal year.

The amount of money lent also climbed about 50%, to $755 million, in the second half of fiscal 2008-09 compared with $500 million in the first half. The rise mirrored a nationwide jump in SBA loans.

Despite the gains, SBA lending has a long way to go. There were 7,000 local loans made in fiscal 2008 and 11,100 in fiscal 2007.

San Francisco-based Bank of the West is on track to make $30 million in small-business loans over the next three months, more than double the volume in the second quarter, said Senior Vice President Don Mercer.

But the bank is tightly targeting certain medical professions that are thriving despite the ups and downs of the economy. "Veterinarians have the No. 1 lowest instance of defaults," Mercer said. "Closely following on their heels are dentists."

The bank, with assets of $62 billion, launched its SBA lending program last year after ending its role as a major player in the secondary market for SBA loans.

Alberto Alvarado, director of the SBA's Los Angeles division, said he expected credit for small businesses to continue to loosen.

"We think the upward trend is sustainable," Alvarado said. "Notwithstanding the terrible aspects of the recession that we've been left with."

SBA loans don't account for all small-business lending. But their numbers are closely tracked as a marker for credit availability for small firms.

To continue the budding credit thaw, President Obama announced additional small-business lending incentives last week. Small firms lost 2.4 million jobs from the middle of 2007 through the end of last year, Obama said last week. And the federal Troubled Asset Relief Program has failed to produce more loans for small businesses.

Obama set out four incentives: two aimed at healthy small businesses and two at those that are struggling.

He also called for the SBA and the Treasury Department to hold a conference to work on additional solutions.

The steps met with mixed reaction from local small-business leaders.

"If somebody thinks it's a panacea to solve all the country's business problems, well, that's not what it is, but it is very good," said Lynda Nahra, president and chief executive of Community West Bank, a Goleta, Calif-based SBA lender with $674 million in assets.

Obama's incentives for lending to healthy businesses include lending federal TARP money at low interest rates to community banks if they can show they will make more small-business loans. Community banks are key to encouraging more lending to small businesses, because most are geared more to such local customers than larger banks.

The community banks that sign up for the new TARP money would have to produce quarterly reports proving they are making more small-business loans.

Obama also said he backs proposals in Congress to raise lending limits on the two most popular types of loans guaranteed by the SBA. The limits would increase to $5 million from $2 million for the 7(a) and 504 loans. The limit for the 504, which is often used to buy real estate or major equipment, would be $5.5 million for manufacturers.

Many small banks do need low-cost capital -- the TARP rate would be 3%, compared with 5% under the existing program. But they are wary of the possible strings attached.

"It is a viable option to raise additional capital. Obviously banks are concerned about what additional regulatory oversight comes with that," said Brian Carlson, chief executive of Excel National Bank, a Beverly Hills-based community bank and SBA lender with $200 million in assets.

But access to additional capital doesn't guarantee a community bank will find significantly more small firms that qualify for loans. Some community banks have enough capital but don't want to make more small-business loans, which many consider higher risk, because they are already struggling with troubled commercial real estate portfolios.

To help struggling small firms that are unlikely to qualify for traditional loans, Obama said TARP money would also be available to nonprofit community-development financial institutions at just 2% interest. He hopes to boost the relatively smaller role these banks and thrifts play in lending to businesses in depressed urban and rural communities.

The moves could help meet a "multibillion dollar" pent-up demand for credit, said Mark Pinsky, president of Opportunity Finance Network, a Philadelphia-based network of community development financial institutions.

Obama also will support legislation to boost limits on SBA micro-loans to $50,000, from $35,000. They are easier to qualify for and are becoming more attractive to firms desperate for capital, said Roberto Barragan, president of Van Nuys-based Valley Economic Development Center Inc., the largest micro-lender in California.

"I am lending money to businesses that last year or the year before would have gotten a bank loan but because of declining sales and the small size of the loan are coming to me," he said.

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