Matters of size

Though loans are still tough to come by, government programs have eased the cash crunch

By Dave Copeland
Globe Correspondent / October 11, 2009

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It’s not easy to get a loan to start or expand a small business these days, but for those who qualify now is the time to capitalize on federal funding.

As part of the stimulus law, Congress allocated $730 million to help the US Small Business Administration dole out loans. Most notably, the American Recovery and Reinvestment Act temporarily increased the SBA’s guarantee of the popular 7(a) loans to 90 percent from a previous maximum of 80 percent.

Loan numbers have been rebounding slowly, and the dollar volume in September was the SBA’s highest total in a month since August 2007 with $1.9 billion lent. “These numbers, along with conversations with our lenders, and small business owners around the country, show that the Recovery Act hit the mark,’’ SBA administrator Karen Mills said in a statement.

In Massachusetts, the lending initiatives have resulted in a 73 percent increase in SBA loan volume since the stimulus law passed, said Bob Nelson, SBA’s district director for Massachusetts.

Nelson, however, would not predict what impact the expiration of the program would have on lending. Right now, the SBA expects to run out of money to make the increased loan guarantees by the end of the year.

“As I travel around the state and talk to bankers, a lot of them are saying they wouldn’t be making these loans without the increased guarantee,’’ Nelson said.

Lending standards remain tight since last year’s financial meltdown froze credit markets, and despite the government’s efforts, overall SBA lending is down year over year.

Based on preliminary numbers for its fiscal year ended Sept. 30, the SBA backed 50,829 loans from banks to borrowers, about 35 percent fewer than the SBA’s flagship 7(a) loan program made in 2008. Total dollar volume also dropped sharply, too, down 27 percent to $13.1 billion. That means about 27,000 fewer entrepreneurs got these type of loans.

“It’s not that the rules have changed . . . it’s that traditional sources, such as banks, aren’t able to lend as they did a year or two ago,’’ said Deborah Monosson, president of Boston Financial & Equity Corp., which offers equipment leasing to angel- or venture-backed start-ups. “For the next year or so, they will be extremely conservative and unable to lend to small and medium companies.’’

Making sure small businesses have access to capital is critical to the US economy and its recovery. Small businesses represent 99.7 percent of all firms and employ more than half of US workers.

In Massachusetts, Eastern Bank made 156 SBA loans, topping the agency’s list of banks that made the most loans during its fiscal year ending Sept. 1. Meanwhile, TD Bank doled out the most money with 35 SBA loans worth $10.4 million. At TD Bank, senior vice president Dave Glidden said the bank is still making loans and low interest rates mean there are good deals for borrowers.

“We really haven’t stopped lending, and the types of credit facilities we’re offering really haven’t changed,’’ he said.

Glidden also said problem areas won’t necessarily result in a denial of a loan application, but borrowers have to be prepared to address them.

“You need to have all the information ready, both the good and the bad. Banks are OK with the bad, they just want a small business owner who can sit in front of them and tell them what is going right, what is going wrong, and what they’re doing about it,’’ he said. “As a banker, you can’t step in and run somebody’s business, so you want to know you’re betting on the right horse.’’

Meanwhile, Bank of America, which ranked fifth in the Bay State last year in terms of the number of government-backed loans to small businesses with 54 loans worth $1.6 million, plummeted to the number 26 spot this year, offering just 11 small business loans worth $240,500.

Bank of America spokesman T.J. Crawford said the bank has seen a decrease in small business lending over the course of the past year.

“The main reason for this trend is that small business owners are concerned about taking on more debt in light of a challenging economy,’’ he said. “Many small business owners have decided to control spending for their business until the economy begins to improve.’’

Crawford said the bank has been working to modify loans for small business owners that are struggling. In the first half of the year, he said, Bank of America has modified more than 32,000 loans nationally.

Monosson, from Boston Financial & Equity, said borrowers can expect audits of their financials after they submit a loan application and lenders are looking for realistic growth projections. She said borrowers who are turned down by banks may be able to find help from small commercial finance companies such as GMAC Commercial Finance and Boston-based Boston Commercial Finance, which offer accounts-receivable financing, inventory, and, in some cases, purchase order financing for established small businesses.

“Because they are not bank owned, they do not have the same constraints and regulations that banks must adhere to as far as credit exposure,’’ she said.

The owners of the local Finale restaurant chain are finding several different lenders are reluctant to make business and equipment loans to them.

When they saw business slide at their three Boston-area restaurants, they opened a wholesale kitchen in Allston in hopes of making up the difference. President and cofounder Paul Conforti said the new wholesale business, open since March, has been an instant hit as it provides hotels and other restaurants with high-end desserts.

But now that Conforti wants to expand the wholesale business, he’s had trouble getting the financing: He said his credit line has been slashed from $90,000 to $50,000, even though he makes payments on time, and he’s been turned down in bids to equipment financing companies to get $75,000 for equipment ranging from a walk-in freezer to a steam kettle.

Finale, Conforti said, has maintained strong relationships his lenders. “But money used to come very easy,’’ he said. “We could ask for anywhere from $50,000 to $100,000 and be approved immediately. That just isn’t happening anymore.’’

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