Jobs Act Opens Floodgates For Lending | $19M in loans guaranteed by SBA within a few weeks
On Sept. 27 President Barack Obama signed the Small Business Jobs Act, which provided billions of dollars of support for the federal Small Business Administration and guaranteed more commercial loans across the country.
Within a week of the measure passing, the SBA guaranteed more than 2,000 loans worth $1 billion.
In the few weeks since the law passed a backlog of 126 loans have been guaranteed by the SBA worth $43 million in New England alone, including 60 in Mass-achusetts for $19 million.
Bankers and small business people across Massachusetts said the federal government’s new loan guarantees have helped open up commercial lines of credit. The SBA is guaranteeing higher amounts of loans, fees for customers are waived, and size limits on fast-tracked loans have more than tripled.
Lending Rules
Normally, it’s more common to hear Avidia Bank President Mark O’Connell talking about how the newest federal government changes will make business harder. Banks, even small community banks like Hudson-based Avidia, have been hit year after year with new regulations, reporting requirements and mandated security upgrades.
“This program is actually helpful,” he said. “Don’t get me wrong, there’s a lot of paperwork, but this is really helping a valuable part of the economy.”
Joseph Kupstas thinks so, too.
He started GoodFellas Construction Inc. in Worcester six years ago with a lifelong friend. The company has grown by more than a dozen employees.
Kupstas hopes to close on nearly $500,000 in loans from Fidelity Bank this month. As soon as he gets the money, ground will be broken on a brand new GoodFellas company headquarters on Route 9 in Shrewsbury.
The new 5,900-square-foot, three-story building will be complete with a showroom on the first floor and two stories of office space for his employees, plus five new ones he plans to hire when construction is done in the spring.
Without the SBA backing the loans he likely would have held off on construction at least another few months. Instead, because of the no-fee clause in the SBA program that is expiring at the end of the year, he acted now. He’ll also hire a handful of subcontractors to help with the construction.
“This one project isn’t going to turn the economy around, but this is one more job these guys get to work on that they wouldn’t have been doing before,” Kupstas said.
For A Rainy Day
Other companies are using loans for long-term growth plans, like Ivy Creative, a Natick-based business communications firm, which secured an SBA-backed loan for $200,000 from Middlesex Savings Bank. Steve Ratner, a principal with the company, works with businesses to produce videos and promotional materials. He was in no rush to get a loan approved about a month ago, but qualified under the SBA program to have his fees reduced, so he took advantage.
“We have some ideas for growth,” he said. “We’re not going to go out and hire 15 people, but we have some expansion plans.”
He’s happy to see support for small businesses from the federal government.
“It’s us little guys that are forging ahead,” he said. “Even in bad times you can’t stop, so it’s nice to see some support.”
Other lenders have high praise for the program, too. Commerce Bank and Trust in Worcester is lending money to companies it otherwise would not have because of the expanded SBA programs, according to John McKenna, senior vice president with the bank.
“We’re very thankful the program has been extended,” McKenna said. “It makes it much easier for customers to get SBA loans and makes the customers much more attractive to supply loans to.”
But some other bankers are tempering their excitement about the program. John Fossett, a senior vice president of Middlesex Savings Bank, is happy to have seen the legislation pass, but noted that money isn’t what every business needs.
“I talk to a lot of business people, and some of them say ‘I don’t need financing, I need customers,’” he said. “If all you really need is customers, is it worth it to put yourself $2.5 million in debt?”
The program has been helpful for companies that have, for example, been putting off buying new equipment, are modernizing processes or are hiring new employees.
Just because a company has SBA backing, though, doesn’t mean that the bank can just lend money to anyone, according to Fossett.
“We’re not in the business of making loans that won’t be paid back,” he said.
If a business defaults on a loan, even one that is 90 percent guaranteed, the bank must still liquidate the loan, then the SBA writes a check for the 90 percent coverage.
In fact, more loans are in default this year compared to last, according to SBA figures. Through the first eight months of last year, 6 percent of loans were in default. This year, the amount in default increased to 7.5 percent.
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