When the economy began its downward turn last year, the Small Business Administration thought it could be somewhat of a savior, said Sandford Blitz, SBA’s regional administrator for New England.
The agency thought that banks, which were growing increasingly reluctant to lend money, would turn to the SBA-guaranteed loans, which shoulder the bulk of the risk for a lender.
In reality, however, the SBA has been suffering from the credit crunch too, just like traditional lenders.
In 2006, the Connecticut chapter of the SBA issued $239 million in loans. In 2007, that number dropped to $189 million. And in the first six months of FY 2008, the loan amount is up from the same time in 2007, from $85 million to $88 million. But the number of loans is down by about 14 percent, from about 551 loans in March of 2007 to 474 loans by the same time this year.
“Everything’s off. All lending’s off,” said Bernard Sweeney, director of SBA’s Connecticut district office.
‘No Credit Crisis’
But according to Sweeney, it’s not a matter of a credit crisis.
“There is no credit crisis,” said Sweeney, who recently met with 15 bankers to discuss the lending situation from the front line. “They have the money to lend. What we’re finding out is their customers are squeamish about taking on debt now,” he added.
The Connecticut Community Investment Corp., a nonprofit economic development lender, has witnessed the same thing, according to its president, Mark Cousineau.
“Our lending partners are still lending,” Cousineau said. “The money does appear to be out there. I don’t think they’re really tightening their credit to the extent that’s out there in the press a lot.”
But there is a sense of caution hanging over potential borrowers. Cousineau said he’s seeing small business owners put off large equipment purchases, which could increase productivity, for fear of taking on debt amid a sketchy economy.
But increasing productivity is exactly what businesses should be doing, Blitz said, in order to take advantage of new incentives that will expire by the end of the year.
Depreciation Deadline
The federal government’s stimulus package, which will funnel $600 to $1,200 into the pockets of consumers by this summer, also has a valuable small business component, Blitz said. And that perk will expire by Dec. 31.
First, the tax rebates are designed to stimulate short-term consumer spending, some of which will flow to smaller companies. Second, the package allows businesses to take a 50 percent accelerated depreciation for new equipment purchases until Dec. 31. Accelerated depreciation encourages companies to buy new assets by deferring corporate income taxes.
And finally, the amount of equipment purchases that companies can expense has risen. Before the stimulus package, businesses were allowed to expense equipment purchases up to $128,000. Now, that ceiling has been raised to $250,000.
“If they purchase Jan. 1 [2009], they can’t take advantage of that,” Blitz said. “Do it now because the federal government is giving you a tax benefit.”
Lower Down Payments
Apart from the stimulus package, the SBA’s 504 loan program is another way to maximize benefits for equipment and commercial real estate purchases.
Under the 504 program, which is administered through the Connecticut Community Investment Corp., banks take on 50 percent of the risk. The SBA takes on 40 percent. That leaves the borrower with a down payment of only 10 percent.
That compares to a traditional deal without SBA involvement, Cousineau said, which leaves the borrower with a down payment in the 20-to-25 percent range.
“With a lower down payment requirement, the small business has more cash for all of the aches and pains that come with expansion,” Cousineau said. And more cushion to cope with a sour national economy.
Borrowers that take advantage of the 504 program and the stimulus package benefit stand to get a double bonus, Blitz said.
