SBA loans drop statewide: Local lenders report better outlook

REGION – While the U.S. Small Business Administration's (SBA) loan program is experiencing a dip in total loans and dollar value across Michigan, local lenders report solid SBA loan activity.

As the federal government's primary loan program, the SBA serves as a guarantor of loans made by private and other institutions to assist small businesses. However, nearly halfway through the 2008 fiscal year, SBA-backed lending is down in Michigan. The number of SBA Express loans statewide was down 45 percent in mid-April compared to year-to-date numbers last year, but the number of loans in the 504 Loan Program was up 26 percent, according to SBA District Director Richard Temkin. In terms of dollars and cents, the total loan figure was down 12 percent.

In the Express program, the SBA guarantees 50 percent of the financing, which tends to be small loans used for working capital and lines of credit; the 504 Loan Program provides financing for fixed assets.

Temkin said the overall state decline in SBA-backed loans is primarily due to the activities of a handful of lenders.

"In our Express program, [the decline] is due to five or six lenders that have really cut back," Temkin said, adding that all the other lenders have maintained steady activity. Those that have cut back, Temkin said, have either increased the bar in terms of the credit score required to qualify or are lenders that are headquartered in other states and the Michigan offices are simply following corporate policy.

J.P Morgan Chase & Co. led the state with 616 SBA-backed loans in Michigan in fiscal year 2007, which ended September 30. That figure was up 62 percent from the previous year when 379 SBA loans were approved, according to Chase. The dollar value also grew 42 percent to $36.1 million.

Evan Lintvedt, vice president of commercial banking for Chase's Traverse City market, said in the first five months of fiscal year 2008 (October 1 through February 29), the bank had 217 SBA transactions statewide and remains the state's top lender.

"Relative to our peers, we feel very good about what we have done for the first five months and will continue the same degree of attention going forward," said Lintvedt.

"Our Traverse City commercial group had a very good 2007 and just completed an excellent first quarter of 2008. SBA continues to play a major role in the opportunities we seek."

The SBA program is often utilized to improve the credit strength of a loan application that may not be approvable in the traditional sense, Lintvedt explained.

"In the event that a loan is not properly secured, SBA enhancement can provide the bank with additional comfort," he said, "by granting a government guaranty or a lower loan to value (LTV) on the asset being financed, thus making it more credit-worthy."

Adding, "We like to be creative, if needed, in order to attract new business and provide value for the client."

At National City, the second highest SBA lender in the state, things are a little off from the same time last year.

"Our volume is down slightly period over period," said Eric Shaffer, community bank president for the local National City market. "Our volume with the Express loans has dipped."

Shaffer didn't cite specific reasons for the drop-off, only to say there aren't as many applicants so the number of SBA loan approvals is down. The bank had approved 116 SBA-backed loans through February. He added that there are a few additional steps to get a government-backed loan guarantee but that National City does a lot of education for customers around the process.

What customers are National City seeing that most benefit from the SBA loan program?

"We've had a lot of success with start-ups that are buying franchises and also business owners who started a business without any material borrowing and are now planning an expansion," added Shaffer.

Michigan SBA lending reached an all-time high in 2006, making 3,702 loans worth $549 million. Fiscal year 2007 was the institution's second-best year at 3,314 loans worth $496 million. BN