SBA loans: Possibly the coolest kids in town?

Maybe some bankers think that Small Business Administration loans are just for risky businesses, the ones that can’t get a conventional loan. But others have welcomed the SBA programs, especially with their new modifications, like they’re the coolest kids in town. And by the end of fiscal year 2010, that attitude has paid off for some local lenders.

Nationwide, the SBA supported $12 billion in lending in 2010, according to Judy Witthohn, SBA deputy district director of the Colorado district office. With 15 loans totaling over $4.6 million, Home State Bank is the top SBA lender in Larimer County and, among privately owned community banks, the number one 7(a) SBA lender in the state.

Home State’s senior vice president of business banking Joe Scherger attributes the bank’s accomplishment with 7(a) loans to moves made two years ago when the bank saw the economy going south. From 2009 to 2010, Home State saw a 200 percent increase in loan dollar amount.

“We saw the impact on loans and saw signs on the retail level. We decided then to be proactive,” Scherger said. Always a “fan” of SBA financing, he said, “we did a portfolio review of businesses already working with us to decide which companies would most benefit” from changes in SBA loan programs brought on by the American Recovery and Reinvestment Act of 2009.

The ARRA began to address the restricted credit environment; the Small Business Jobs Act of 2010 made still more changes to SBA loan programs (including the popular 90 percent guarantee and fee waivers, and permanently increasing 7(a) and 504 loan limits from $2 million to $5 million). “In Home State’s case, SBA nailed it. I cannot commend the entire SBA program from Washington, down to the local district office, enough,” Scherger said.

Almost any type of for-profit business is eligible for a 7(a) loan, while 504 loans are typically used for real estate acquisition, construction or equipment purchases.

SBA loans were also good for the Commerce Banks (Loveland Bank of Commerce, Fort Collins Commerce Bank, Larimer Bank of Commerce). The three banks took in nine SBA loans totaling almost $4 million in 2010.

“In terms of loan growth, a good half of ours is associated with the SBA loan programs because they are so enhanced and positive,´ said Gerard Nalezny, Commerce Bank chairman. “At this point they are superior to conventional. The SBA programs right now are pretty sweet.”

Preferred Lending Partners, a certified development company that focuses on the SBA’s 504 program for business expansion, saw an increase in business as a result of government changes in the programs. “It helped to get more businesses borrowing,´ said Stephanie Gerringer, executive director. “We were up about 25 percent from 2008.”

Good for businesses, too

Alpine Dental Health of Fort Collins moved to a SBA loan facilitated by Home State Bank, from conventional loans where the rate was 2.5 percent higher. The fast-growing practice used the loan to consolidate higher-interest loans, expand and remodel office space and purchase equipment.

Michael McDill, DDS, of Apline Dental said that he and business partner Todd Rosenzweig, DDS, would have made needed improvements to the business regardless, but the lower rate with the SBA loan helped them to maintain a healthy cash flow in the process. One downside was the paperwork.

“It was substantial,” McDill said. “We felt like the SBA required more paperwork than our initial loans. Our loan officer was extremely helpful. It was nice to have someone who was always available.”

But just when SBA is experiencing this success, the popular 7(a) loan program has changed. While the Small Business Jobs Act signed into law at the end of September provided a 90 percent guarantee and fee waiver, funding for that provision expired on Dec. 31.

“The Jobs Act did not include an extension,´ said SBA’s Witthohn. “Until Congress takes other action there won’t be a renewal.”

As for loans that were in the process of being funded when the money ran out, “they maybe able to switch to a different (SBA) program,” she added.

Even with changes, Home State will continue to pursue SBA loans.

“SBA loaning is a growth area at Home State Bank. Our focus and our officers understand SBA programs,” Scherger said. “Even if the SBA program reverts back to prior program levels, it’s a wonderful program.”

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