Small business lending: Loans down, but demand expected to increase

Phil Castle, The Business Times

Small business lending activity under two programs backed by a federal agency has slowed in Mesa County even as some business owners remain reluctant to seek financing even if conditions warrant expansion.

But lenders expect loan demand to rebound along with the economy. And a new program waiving the fee for loans under $150,000 is expected to encourage more smaller loans.

“Fortunately, there have been some rays of sunshine,” said Steve Irion, Wells Fargo president and business banking manager for the Grand Junction market.

Scott Wittman, vice president at Timberline Bank in Grand Junction, said the pipeline of new loans at his bank is as full as it’s been in several years.

Pat Berry, a loan officer with Small Business Finance Corp. in Grand Junction, also expects activity to pick up. “This year is probably going to be really busy.”

According to figures from the Colorado District office of the U.S. Small Business Administration, a total of 15 loans backed by SBA guarantees were issued in Mesa County during the 2013 fiscal year that ended Sept. 30.

Of that total, 10 loans were issued through the 7(a) general business loan guarantee program. The remaining five loans were issued through the 504 program to finance land, building and equipment.

The dollar volume of loan guarantees issued through the 7(a) program was up slightly over last year. But the dollar volume of guarantees issued through the 504 program dropped by almost half.

Counting only the portions of the loans guaranteed by the SBA, the dollar volume of 7(a) loans topped $4 million. The dollar volume of 504 loans backed by the SBA totalled nearly $1.5 million.

By comparison, 26 loans with a total SBA guarantee of nearly $6.9 million were issued in Mesa County during the 2012 fiscal year.

Counting the overall amount of the 7 (a) loans, however, the dollar volume approached $7 million, reflecting the additional financing SBA guarantees leverage. The SBA doesn’t make direct loans under the 7 (a) and 504 programs. By guaranteeing repayment on a portion of the loans, however, the agency enables lenders to extend financing to small businesses that might not qualify under more conventional terms.

Statewide, the Colorado district office of the SBA guaranteed 1,388 loans during the 2013 fiscal year. Counting only the portions of the loan backed by guarantees, dollar volume declined from 2012 levels. Counting the total amount of the loans, however, dollar volume soared to more than

While lending activity under two U.S. Small Business Administration programs slowed slightly in Mesa County during the 2013 fiscal year, lenders expect loan demand to rebound during the 2014 fiscal year. (Business Times photo illustration by Phil Castle)

$622 million.

Greg Lopez, SBA district director in Colorado, said he was pleased with the numbers. “I think there’s a lot of positive stuff going on.”

Of the total loan guarantees approved in Colorado, 1,117 were issued through the 7 (a) program and 271 through the 504 program.

In responding to the needs of small businesses and lenders, more SBA guarantees back smaller loans, Lopez said. The Small Loan Advantage program, for example, is designed to encourage lenders to extends loans of less than $350,000 by simplifying and streamlining the approval process. “It’s addressing a huge sector of the small business community,” he said.

For the 2014 fiscal year, the SBA will waive the guaranty fee for 7 (a) loans under $150,000, saving small business borrowers in Colorado an average of $2,550. “I think this is going to be a great product, a great approach,” Lopez said.

While a 16-day federal government shutdown that began on the first day of the 2014 fiscal year has delayed processing on SBA loan guarantees, Lopez said he expects the backlog will be handled within  several weeks.

Otherwise, Lopez said he expects a rebounding economy in Colorado to drive increased demand for small business loans issued under SBA programs. “I think the attitude is very positive out there.”

That hasn’t been the case in Mesa County, which continues to lag behind other areas of the state in the recovery.

Irion and Berry both said some small business owners remain reluctant to finance expansion. “There’s still a lot of uncertainty out there,” Irion said.

But even as the overall state economy improves, so does the outlook. Said Berry: “We’re starting to see a trickle down effect in this area.”

Wittman said some business owners don’t want to wait any longer to press ahead with their plans. “People are tired of being on the sidelines.”

In Mesa County, Wells Fargo was the top 7(a) lender with five loans worth a total dollar volume of more than $6 million.

Irion said those loans helped finance the purchase and renovation of buildings for expanding businesses as well as the acquisition of an existing business.

Wells Fargo remained the top 7(a) lender in Colorado with 222 loans worth a total of nearly $84.2 million.

Irion said Wells Fargo employs SBA lending specialists to focus on what the bank considers an important part of its loan portfolio. “SBA continues to be one of the main lending sources that we have. We continue to get that business.”

SBA programs benefit borrowers, too, in offering lower down payments and longer terms. The guaranty also enables banks to structure deals for borrowers that might have limited liquidity or want to save cash for business operations, Irion said.

While there’s a lingering perception SBA-backed loans require more paperwork and can take longer to process, that’s no longer the case, he said.

Timberline Bank issued three (7a) loans in Mesa County during the 2013 fiscal year with a total value of nearly $570,000. Timberline Bank issued 17 loans statewide.

Wittman  said he expects demand for SBA-backed loans to increase in Mesa County on the basis of what he called “cautious optimism” about improving economic conditions. He expects even more demand for smaller 7 (a) loans now that the SBA has waived the guaranty fee.

The Small Business Finance Corp. was involved with only one 504 loan in Mesa County during the 2013 fiscal year.  But Berry said she expects more activity during the 2014 fiscal year.

The 504 program continues to offer attractive advantages, she said, including long-term, fixed-rate financing for real estate and equipment with some of the lowest interest rates in decades.

 The program is especially well-suited for existing companies expanding operations — what Berry called “a good business ready to take the next step.”