SBA Program Has Few Takers In Central Mass. | Powerful lending program slowly gains steam
Photo/Courtesy
Michael Hewitt, COO , executive vice president and senior lender for Fidelity Bank.
Despite less paperwork and fast-tracking of loans, the Small Business Administration (SBA)’s Preferred Lender Program is off to a slow start in Central Massachusetts.
The program, which offers quicker, 24-hour turnaround for loan applications, signed up its third lender based in Central Massachusetts in July — Fidelity Bank of Leominster. The other two Central Massachusetts banks enrolled in the program are Middlesex Savings Bank of Natick and Flagship Bank & Trust of Worcester.
Joining the program has definitely cut back on wait times for the bank and its customers that qualify, according to Michael Hewitt, COO, executive vice president and senior lender for Fidelity Bank.
“There’s no wait time anymore,” he said. “A small business coming to us would get it (the loan) turned around a lot quicker. To be able to have this added dimension of being a preferred lender has made it much easier for us. We’ve really grown our portfolio.”
Meeting Requirements
But Fidelity didn’t jump into the Preferred Lender Program. There are a number of factors that the SBA considers before granting a bank or credit union with preferred lender status, primarily the volume of SBA loans processed by the institution and the status of its current loans.
To be eligible, a bank must process at least 10 SBA loans in the last three, full fiscal years and the current year to date or a minimum of five SBA loans in the last full fiscal year and the current year to date. It must also demonstrate that at least 85 percent of its current loans are being repaid according to the loan terms.
In Fidelity’s case, District Director Robert Nelson worked with the bank to improve its level of comfort in processing loans through the SBA’s express program, which he says is how most banks will meet the loan volume requirement and also gain added confidence working with the SBA.
“They started doing some SBA deals and saw increased activity and they made the commitment,” Nelson said. “It was a two-year process, but the bank developed from very low activity to a very active partner of the SBA.”
That’s the biggest challenge that Nelson and the SBA faces — building up the confidence of local lenders to take on the added responsibility of having SBA authorization privileges.
“There are some lenders that have met the volume requirement and in our opinion are good PLP candidates, but yet for some internal decisions, they think they’re not ready,” he said. “They feel more comfortable with the SBA putting the stamp of approval on things. The difficult work is working with the lenders; holding their hand in the early days; getting them comfortable and making sure that they’re not making any mistakes that will make them shy away from being involved with the SBA.”
At this stage, any trepidation that Hewitt might feel when processing and approving loan applications is long gone.
“I’ve been around banking too many years to worry or stress,” he said. “You have to have confidence in your decisions. It’s really an educational thing. Once you’re comfortable with it, it’s not very cumbersome. However, you’re the one signing on the dotted line, so you have to be sure that you’ve done the documentation.”
Reaping The Rewards
It may sound intimidating — being the authorizing agency for an SBA loan — but the few locally based banks with preferred lender status agree that the concept is more intimidating in theory than it is in practice.
“All of the requirements for underwriting and such are just the same as if we had submitted it (the loan) to the SBA for approval,” says John Fossett, senior vice president at Middlesex Savings Bank in Natick, which has served as an SBA lender since 1984 and gained its preferred lender status in January 2008. “It’s been a very beneficial process for us and, more importantly, for smaller business people who invariably need or hope for a prompt response.”
One such example is Mass Lung & Allergy in Leominster, which needed an SBA loan to evolve from a clinic affiliated with HealthAlliance Hospital to its own private practice.
“We signed the loan in June,” said Practice Manager Linda MacMillan of her work with Fidelity in Leominster. “That was plenty of time to have the money available to open the practice in Leominster at the first of August.”
As MacMillan explains, the quick availability of the funds allowed them to pay staff right away and also to shore up any utility issues moving forward, which allowed the clinic to stay open through the entire transitional period.
“If we had had to shut down the practice for a month to wait for funds to be available, that would’ve been very detrimental, not only monetary wise for the practice but also for patient care, which for us is the most important thing,” she said.
Rapid Recovery
Although the economy is still struggling, it may have a positive effect on the future total of preferred lenders here in Massachusetts.
Through the SBA and under the 2009 American Reinvestment and Recovery Act, temporary fee eliminations to 7(a) loans — the most basic and most common loans provided to small businesses — are expected to drive up the demand of SBA loans in general. Based on sheer volume alone, that likely will make more lenders eligible for preferred lender status.
“We’re seeing lenders who haven’t made a loan with us in a couple of years that are coming back to us and also new lenders who have never been an SBA lender,” Nelson said. “There’s a lot of new enthusiasm with the SBA and our programs because of the recovery act.”
The temporary fee eliminations support an overall program level of $8.7 billion and, based on that number, are expected to apply to loans approved through December 31st.
But the fee eliminations do more than just improve popularity of SBA loans, they also provide real savings and added support to the small businesses that are applying for — and receiving — them. As way of example, Mass Lung & Allergy saved approximately $24,000, which it re-invested into its growing practice.
For banks that already have preferred lender status like Middlesex Savings in Natick, there is hope that the future brings higher volumes of SBA loans. And while their confidence to process and approve SBA loans as a preferred lender improves, the necessary steps to increase the incoming loan applications are decidedly unclear.
“As people’s awareness of our preferred lender’s status and what that status means…as that knowledge improves, I think more people would be inclined to take advantage of that,” Fossett said.
“There’s not much more that we can do other than advertise it on our website and make sure that people know what that means and what it offers.”
WBJ Web Partners
Most Recent
Most Recent
0 Comments