Decline in SBA-backed loan activity in Mesa County bucks trends

The dollar volume of loans backed by the U.S. Small Business Administration continues to decline in Mesa County even as lending levels elsewhere in Colorado and the United States climb to record heights.

While SBA officials and lenders were unable to pinpoint a specific reason or reasons for the diverging trends, they say many small business owners in the Grand Valley remain reluctant to expand operations given current economic conditions and an uncertain future.

“It’s still very much kind of a wait-and-see attitude whether a company or a business should expand or just kind of remain entrenched,” said Steve Irion, president of the Grand Junction market for Wells Fargo Bank.Steve Irion

Nonetheless, opportunities remain available for those businesses that want financing.

Mell Teats, vice president of Timberline Bank, said he expects his bank to issue four SBA-backed loans in October, matching the total for all of the 2011 fiscal year that ended in September. “The activity is definitely up for us.”

According to figures from the Colorado District Office of the SBA in Denver, 25 loans worth a combined $5.8 million were issued in Mesa County during FY 2011. Of that total, 18 loans worth a total of almost $3.7 million were issued through the 7 (a) general business loan guarantee program. Another seven loans worth a total of more than $2.1 million were issued through the 504 program to finance land, buildings and equipment.

By comparison, 25 loans worth a collective $5.9 million were issued in Mesa County during FY 2010 under the 7 (a) program. Lending levels were progressively higher in the preceding three fiscal years, hitting $13.7 million in FY 2007.

Lending activity increased slightly under the 504 program in Mesa County for the 2011 fiscal year, however, with the combined dollar volume up 4.3 percent over the $2 million issued in FY 2010.

Elsewhere in Colorado, SBA-backed financing surged to a record $620 million in the 2011 fiscal year, with $490 million worth of 7 (a) loans and $130 million in 504 loans.

Nationwide, the SBA reported backing nearly 62,000 loans worth a combined $30.5 billion during FY 2011. The dollar volume was the most ever for the federal agency during a single fiscal year, surpassing the $28.5 billion mark established in FY 2007.

The SBA doesn’t make direct loans. By guaranteeing repayment on a portion of the loan, though, the agency enables commercial lenders to extend loans to small businesses that might not qualify under traditional terms.

Greg Lopez, the director of the Colorado SBA District Office, attributed the increases in lending levels in part to  the provisions of federal legislation that for  part of FY 2011  increased guarantee levels and waived fees.Greg Lopez

But at the same time, the SBA revamped its efforts to work with lenders and make financing available to more small businesses, Lopez said. More than 200 lenders how offer SBA-backed loans in Colorado.

Moreover, business conditions have improved in some industry sectors, although economic recovery overall remains slow in Colorado, he added. “The economy is sluggish. It’s moving in the right direction, however slowly it is.”

Wells Fargo remained the top SBA lender in the United States and Colorado during the 2011 fiscal year. Nationally, Wells Fargo issued $1.2 billion in 7 (a) loans, nearly 40 percent more than FY 2010. In the state, the company issued 215 loans worth a total of $79.8 million, up from 160 loans totalling $51.2 million last year.

In Mesa County, though, lending trends went the other way. Loan volume under the 7 (a) program fell 38 percent in FY 2011, extending to four years the downward trend in activity under that program.

Timberline Bank was the top 7 (a) lender in the county in FY 2011 with four loans worth a total of nearly $1.25 million. Wells Fargo issued three loans worth a total of almost $700,000. Vectra Bank issued three loans worth a total of $262,000. Alpine Bank, Bank of Colorado, First National Bank of the Rockies and U.S. Bank issued one loan each.

While SBA guarantees make lending possible for some applicants who wouldn’t qualify under traditional terms, those applicants still must demonstrate the ability to repay those loans, Irion said. And economic conditions make it difficult for some business owners to meet that requirement, he added.

Those same economic conditions have made other business owners reluctant to seek financing to expand operations or increasing staffing, Irion said. “There’s not a reason for them to expand.”

Mesa County didn’t experience the full effects of the recession until after other areas of Colorado and the nation. And the area could similarly lag behind other areas in experiencing recovery, Irion said.

At the same time, uncertainty among business owners and consumers persists and could do so through the presidential election in 2012, he said.

Nonetheless, Irion and others said SBA-backed lending activity could increase for the 2012 fiscal year.

Irion said banks remain motivated to increase lending levels to counter declining revenues from other sources. “Banks want to make loans, there’s no doubt about that.”

Taets said he expects lending activity at Timberline Bank to increase for both the 7 (a) and 504 programs. The bank has been accepted into the SBA Preferred Lenders Program, which simplifies and expedites the SBA-backed loan application process. Since loans are evaluated in-house at Timberline Bank, those processes can be shortened from up to two months to about one week. “It just makes sense for a community bank like us to offer that program to our customers,” Taets said.

Lopez said the SBA has developed a number of new lending programs to increase access to financing for small businesses, including the expansion of the Colorado Main Street Loan program offering loans of up to $200,000 across the state and a SBA-backed line of credit.

Lopez said he expects SBA lending activity to increase in Mesa County as economic conditions improve and more businesses expand operations not only to serve local customers, but also to branch out to other geographic areas.

“I predict you’ll find there will be more small businesses in Mesa County getting approved for loans in the next 12 months,” he said.