Big drop in small lending
SBA-backed loans down significantly
By ALEXANDER SOULE
Tightening credit terms for small businesses are affecting
even one source that is supposed to function as a lender
of last resort in down cycles – the Small Business
Administration’s guaranteed loan programs
In New York and nationally, loans are down significantly
this year for the SBA’s two primary loan programs:
the 7(a) program that guarantees up to 85 percent of
working-capital loans doled out by banks and the 504
program that guarantees loans for larger asset purchases
such as real estate or machinery.
A drop in SBA guarantees might have a particular impact
in a few industries. According to New Jersey’s SBA
office, restaurants land double the number of SBA loans
of the next closest industry, hair and nail salons.
Small businesses requiring major upfront equipment
costs such as dental clinics, fitness gyms and mechanics
also rely on such loans.
JPMorgan Chase led the New York City region in SBA
lending last year, issuing nearly 1,900 loans for a
combined $80 million. That was more than twice the
level of Charlotte, N.C.-based Bank of America Corp.
In all, the New York district office arranged guarantees
for 6,000 loans totaling $620 million, the fifth consecutive
year SBA lending increased in the region. In the current
fiscal year, however, SBA lending is off about 20 percent
from the same level last year, with Bank of America’s
SBA loans off 40 percent.
SBA loan figures are dropping despite the agency’s
effort to streamline its loan process, cutting its
standard-operating procedure manual for bankers from
1,000 pages to 400. Bankers apparently are still having
a difficult time implementing the changes; in April
the SBA agreed to extend by six weeks a deadline for
banks to comply with the newly streamlined procedures.
The apparent tightening of SBA lending is in line with
general credit conditions. In an April survey of senior
bank loan officers, the Federal Reserve Bank found
that half of banks reported tightening loan requirements,
up from 30 percent in a January poll, though just 4
percent indicated they had tightened loans “considerably”
to small businesses.
In a separate survey, the New York Fed reported an
“across the board” increase in delinquencies as of
mid-April, which are at their highest level in more
than a decade.
In the past two years, 370 banks have dropped out of
SBA lending programs altogether, according to Marilyn
Landis, chair of the Washington, D.C.-based National
Small Business Association.
Landis blames the trend in part on an increase in fees
to the statutory limit for the 7(a) programs. Massachusetts
Sen. John Kerry, who heads the U.S. Senate Committee
on Small Business and Entrepreneurship, reiterated
in early May a request to temporarily lower the fees
paid on SBA loans, a measure that would cost $200 million.
“The current capital vacuum has created a new predicament
for small-business owners – use credit cards or (go)
bust,” Landis said. “Many small-business owners first
turned to credit cards as their primary source of working
capital in the early years of this decade, when a multitude
of banks last tightened their lending standards.”
For business owners seeking optimism, there was cause
for some in a recent report – the April installment
of the Fed’s Empire State Manufacturing Survey reversed
two months of pessimism, as manufacturers reported
sharp improvements in business conditions and did not
indicate plans for widespread layoffs.
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