Show Me The Money

Seventy-five percent of new SBA loans now

used for business expansion instead of

restructuring debt

By Tom Carr

TRAVERSE CITY – Small Business Administration (SBA) loans are increasing in the area, helping clothing makers, hunting and fishing accessory manufacturers and fudge shops grow their businesses.

It's the growth aspect that has captured lenders' attention, since few loans were used for business expansion during the recent recession.

"In 2010 and 2011, the majority of SBA activity was to restructure existing debt," said Brad Dyksterhouse, senior vice president of business lending for the Bank of Northern Michigan. "In the last six to nine months, we've seen a complete reversal of that."

Dyksterhouse estimates as much as 75 percent of the loans are being used for business expansion now, versus 25 percent in 2010 and 2011.

SBA loans are designed to make money more readily available for small businesses in order to stimulate local economies. They provide longer terms, meaning lower monthly payments, and require a smaller amount of collateral with lower down payments.

The agency's definition of a small business includes manufacturers with 500 or fewer employees, or any type of business with a net worth of $15 million or less, or net profits of $5 million or less per year.

Since Oct.1, when the SBA fiscal year began, banks have committed nearly $12 million in Grand Traverse County, with Traverse City State Bank (TCSB) committing more than half that.

In the last 12 months alone, TCSB has originated twice as much new money to small businesses from just two years prior, said Mitchell Blue, vice president of commercial lending for TCSB.

"I think that we are seeing some confidence back in the market," said Blue, who was named SBA 504 Lender of the Year in 2010 by the Grand Rapids-based Economic Development Foundation. "These businesses cut and cut, then they held stable, and now they are moving forward again."

Some loans have been used to bring in businesses from out of state.

Altus Brands LLC obtained one to help purchase Extreme Dimension Wildlife Calls of Hampden, Maine. Extreme – which makes electronic, hand-held calls for ducks and other birds and game – will be relocated to Traverse City, Altus officials say.

Loans have also been used to purchase existing businesses. Tessa Alexander used her $500,000 loan to purchase Teboe Florist and keep the thriving business going.

"It wasn't difficult to obtain," Alexander said. "It was no more difficult than buying a house."

Baabaazuzu, which makes environmentally friendly clothing in Leelanau County, needed to be marketed on a national scale, said Kevin Burns, who owns the company with his wife, Sue. The couple attends a lot of trade shows, and the loan helped purchase a booth that was attractive and could be erected in one-quarter the time it took to put up the old booth.

Kilwins Chocolates used SBA loans and other funding methods to buy an old supermarket in Petoskey and convert it into a kitchen.

The chain is expanding into Grand Rapids and other markets and needed a larger facility to supply more than 80 stores, said Don McCarty, CEO of the 65-year-old company.

"We had postponed it for a year in the recession," he said. "But we were just out of room."

The new kitchen, which is four times as large as their previous space, serves a dual purpose, McCarty said.

"It enables a greater output, but provides enough space for us to give tours and become a regional draw," he said.

The change in what the loans are used for happened about a year ago, says Mike Witkop, senior vice president for business banking at Huntington National Bank in Traverse City.

"We have found that in the last 12 months, we're seeing more people discussing expansions," Witkop said.

Things were different in recent history.

"In 2008 and 2009, a lot of companies pulled back from investing," said Joan Schroeder, SBA/USDA product specialist and vice president at Huntington National Bank. "The companies that were still doing well were concentrating on cutting costs."

Whether taking advantage of historically low real estate prices, or finally having the faith to re-invest in new machinery, many small business owners are now ready to take some risks again.

"You can only be in business so long without spending money on your business," Schroeder said.

The trend for small business expansion is not only happening in the Grand Traverse region, said Craig Street, who directs SBA loans for Huntington National Bank's corporate offices in Columbus, Ohio.

Still, the loans can be a tough sell for some businesspeople, he said.

"A lot of customers are not excited about getting a government loan," said Street.

But the banks that issue them tout their benefits nonetheless.

"It's been a great program to finance businesses, and it allows us to put money out there with less collateral behind it," Schroeder said.

There are other types of government-backed loans, including products from the United States Department of Agriculture and the Michigan Economic Development Corporation, both of which serve similar purposes. Lenders say these loans are attracting more borrowers, as well.

"If you're a healthy business right now, there are a lot of opportunities out there," said Dyksterhouse.

Overall, Dyksterhouse said the activity is a good sign for the economy, though there's still a lot of room for improvement.

"We haven't really turned the corner, but we can see the corner now," he said. "The confidence level in the economy is improving considerably." BN