Lending is starting to flow again to small businesses.
The Small Business Administration Richmond office helped broker 230 loans in the most recent quarter, which ends today. That’s 19 more than the same quarter last year – and the first quarter in a year not see at least a 27 percent decrease in the number of loans issued.
Two quarters ago, the number of loans was down more than 50 percent from the previous year.
“There’s a little more confidence out there in the small-business community,” said Scott Dailey, an assistant director at the SBA’s Richmond office, which handles the entire state except for Northern Virginia.
“The Recovery Act has gone a long way towards giving entrepreneurs reason to take out loans and reduce fees and expenses.”
In particular, Dailey was referring to increased loan guarantees from 75 percent and 85 percent to 90 percent on 7(a) loans. The fees businesses had to pay the SBA were also reduced.
About $55 million was lent to businesses this quarter, double the amount from two quarters ago.
SBA lending is vital to the local economy because it’s often where small businesses get their first infusion of startup capital, enabling them to open a restaurant or rent commercial space or buy some new piece of equipment. Those purchases trickle through the entire small-business community. And SBA lending is becoming one of the few options as banks reign in lending.
“The traditional banks are paralyzed, and the SBA was the only real avenue of financing without trying to find private equity investors,” said Kevin Healy, owner of the Boathouse at Rocketts Landing, a restaurant that recently opened along the James River in Richmond.
Healy, who used an SBA loan to open his first Boathouse restaurant in Chesterfield in 1990, said he started looking for lending in December. He went to Wachovia and SunTrust.
“I can’t explain how ineffective they were. Nobody wanted to be approving anything. Not even for $10,” Healy said, adding that he eventually got almost $500,000 through an SBA-backed loan issued by Northern-Virginia-based Sona Bank.
The Boathouse employs about 75 people, he said, and during the build-out had 50 tradespeople working on the structure during various stages.
Richmond-based Handcraft Cleaners didn’t have as much trouble finding traditional lenders for its $9 million medical laundry plant, which opened at the end of 2008. But the company used the SBA maximum $2 million loan because it was more flexible.
“It was a well-structured loan. A low fixed rate. That makes it a little bit easier on cash flow,” said co-owner Jay Nichols.
Union Bank & Trust issued part of that SBA-backed loan.
“A lot of banks don’t even bother with SBA-backed loans now,” Nichols said. “They don’t have time. They have so many other problems to work out.”
The deep freeze on SBA lending seems to be thawing, at least for now. About 1,200 lenders nationwide that stopped writing SBA loans in October 2008 regained their appetite and issued a loan since February 2009, according to the SBA.
But the extra enticements are set to expire when the additional funds set aside run out. Dailey said the agency expects that to happen around December. It’s unclear whether Congress will extend the funding.
The top two lenders this quarter by dollar amounts were BB&T (80 loans through Aug. 31 for $16.1) million and Sona Bank (27 loans through Aug. 31 for $9.5 million).
Aaron Kremer is the BizSense Editor. Please send news tips to [email protected]