Streamlined help from the SBA
One of the most significant changes in small-business lending during the past year has been the elimination of most fees and an increase in guarantee limits for U.S. Small Business Administration-related loans.Currently, the SBA will guarantee up to 90 percent of qualifying loans amounts, up from last year's guarantee of 75 percent. These temporary modifications were part of the American Reinvestment and Recovery Act, passed early this year, and are designed to help small businesses gain access to capital on terms they might not otherwise receive.According to Witmer H. Jones, the SBA district director for New Hampshire, "The SBA guarantee isn't there to help banks make risky loans, but to help banks make appropriate loans to small businesses that, because of the low liquidation value of business collateral, the bank does not feel safe in making."While any bank may apply for an SBA guarantee on a loan, certain banks, known as preferred lenders, can go directly to the SBA Web site and fill out the necessary paperwork for the guarantee.Currently, there are 31 preferred lenders in New Hampshire, each with the ability to make SBA guaranteed loans autonomously. This not only streamlines the loan process, but also reduces the time and costs associated with making the loan, allowing small-business owners to get the money they need more efficiently.Currently, small businesses are creating 70 percent of all new jobs in the country, and their owners and employees make up just over half of all American private-sector workers. As an independent government agency, the SBA not only guarantees a percentage of a loan made to a small business through its 7(a) program, but also offers a variety of resources, including SCORE, the Small Business Development Center, the Women's Business Center and other programs designed to advise and assist business owners.Lending volume picking upAnother popular program is called the 504 loan, which combines direct SBA financing with bank participation and is targeted for real estate and large capital assets.For most acquisitions under the program, the bank lends 50 percent of the total amount, with an SBA guaranteed loan for 40 percent and 10 percent down payment from the borrower.These loans are organized and managed by an approved certified development company (CDC), such as Capital Regional Development Council, based in Concord. CDCs are nonprofit corporations set up to contribute to the economic development of their community. The three CDCs based in New Hampshire facilitated a combined total of $26,432,000 in new loans between Oct. 1, 2008, and Sept. 30, 2009.In spite of the modifications to the most popular SBA programs, the New Hampshire district office reported a decrease in total dollar volume for their fiscal year ending Sept. 30, 2009. Still, the SBA guaranteed loans totaled over $86 million - money that may not have otherwise been lent, with the average loan size increasing by $75,000.Noticeably, there was a sharp decrease in the number of 504 loans made, likely the result of business owners' reluctance to invest heavily in real estate and other large capital assets.With the start of the new fiscal year, the lending volume is picking up, as cautious banks are coming more and more to the SBA. The SBA is focusing on community banks to make these loans, and currently these banks are the largest lenders in terms of dollar amounts.As the SBA's Jones put it, "Community banks, through SBA-guaranteed loans, are directly helping small businesses in New Hampshire, and when you have a successful local business, it is spending money in the community and keeping jobs in the state that might otherwise leave."Although the waived fees and increased guarantees should not be the only motivation for borrowing, they certainly have an impact, and do result in substantial savings for business owners.In the future, we may reflect on this time as a rare convergence of low interest rates, reasonable market valuations and economic incentives. Despite the many economic uncertainties, New Hampshire small businesses are taking advantage of opportunities to expand and restructure with the help of the SBA and continuing to drive the local economy. Jim Dunphy, president and chief executive of Hampshire First Bank, can reached at 603-263-1444 or firstname.lastname@example.org.