SBA Lending Surges In U.S. And Mass.
Lending under the U.S. Small Business Administration’s programs rose to unprecedented levels in fiscal 2011, both in Massachusetts and in the nation as a whole, thanks largely to two factors.
First, the agency was offering attractive temporary provisions in the loan program, particularly in the first quarter of the year. And second, economic conditions made many entrepreneurs optimistic enough to start companies or expand, but it didn’t give them a firm enough footing to qualify for standard bank loans, which sent entrepreneurs to the SBA.
SBA lending in Massachusetts hit $424 million for the fiscal year, which ran from October 2010 through September 2011. That’s a 19 percent increase from the 2010 fiscal year. Nationally, lending rose 35 percent to $30.5 billion.
“We use the SBA programs to do what we’re supposed to be doing as a community bank, namely, helping the local business community and our partners,” said David Bennett, vice president and director of business banking at Middlesex Savings Bank in Natick.
Middlesex was the seventh-largest SBA lender in the state and the largest in Central Massachusetts in fiscal 2011, with 50 loans under SBA’s main loan program, known as 7(a), for a total of more than $7 million.
SBA loans are intended to help small businesses that aren’t quite financially secure enough — like startups and companies without significant collateral — to qualify for standard bank loans. The government guarantees a portion of the loan in exchange for some fees and extra paperwork.
In 2009 and 2010, as part of the American Recovery and Reinvestment Act, the SBA reduced or waived those fees and upped its guarantees for many loans from 75 or 85 percent to 90 percent. Those sweeteners were still in effect for the first quarter of fiscal 2011, which, not surprisingly, was the most active part of the year.
But even after the fees returned and the guarantees were lessened, SBA lenders remained busy. Michael Semizoglou, a commercial lender with Framingham Co-operative Bank, said he was somewhat surprised that demand didn’t fall off in early 2011. He said he thinks the more attractive terms helped some businesses get more familiar with SBA programs, and they stayed interested even after the terms expired.
But also, Semizoglou said, many of his customers these days are in a sort of sweet spot for SBA loans. Some are startups, some have lost their ability to put up collateral because of falling real estate values and some are turning their businesses around and expanding after a tough period but don’t have the kind of history of recent profits that they would need for a standard bank loan. Semizoglou said many companies had also put off major capital investments over the past few years and need to make some big purchases now.
“There’s only so long you can hold onto old equipment for,” he said.
Framingham Co-operative made 24 loans under 7(a) worth $4 million in fiscal 2011.
Raised Loan Limits
Another reason for the large value of SBA loans in fiscal 2011 is that banks made larger loans through the program than in previous years. The average Massachusetts SBA loan in fiscal 2006 was $129,768. In fiscal 2011 it was $218,219.
Robert Nelson, Massachusetts district director for the SBA, said that increase was partly a result of two changes contained in last year’s federal Small Business Jobs Act. The law temporarily raised the limit for the SBA’s Express Loan program from $350,000 to $1 million and permanently upped the limit for most SBA loans from $3 million to $5 million.
Nelson said the higher loan limits have allowed the SBA to give more support to high-tech, high-growth companies that typically need more cash than the Main Street-type companies usually associated with SBA funding. He said that’s especially important in Massachusetts, where technology companies are important drivers of growth.
Nelson said banks are only supposed to use SBA loans if they can’t make the loan work otherwise, but Semizoglou said he’s heard of banks that go through the SBA for loans that they could do on their own to get the extra security of the government guarantee. He and Bennett both said they don’t do that at their banks, not just because it’s against the rules but also because of the extra fees and paperwork involved.
“That’s why we reserve it for the right situations,” Bennett said.
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