U.S. Small Business Administration lending surged in Connecticut during the month of December as companies moved to utilize higher guarantees and reduced fees on SBA loans before those perks expired.
Connecticut banks nearly doubled their output of SBA loans last month, underwriting 103 deals worth about $54 million, compared to 65 deals worth $14.4 million a year earlier.
The increased activity came as Congress was failing to appropriate more money to provide larger loan guarantees and reduced loan fees, which were originally enacted as part of the stimulus bill.
As a result, the government guarantee on the SBA’s 7(a) loan program, which is aimed at businesses in rural/urban areas as well as exporters, has declined from 90 percent to 75 percent, which means lenders will have to shoulder more risk to underwrite loans.
That will likely slow down loan activity, and indeed officials are already seeing some of the momentum built up from December taper off.
“Things have slowed down a bit because of the holidays and the weather,” said Bernard Sweeney, district director of the Connecticut SBA Office.
Sweeney said his office helped broker about 230 loans from October to the end of December, but the team has been doing about five or six loans a week since that time.
Overall, he said SBA lending has been on a roller coaster ride in the state. Despite the surge at the end of last year, SBA lending overall fell slightly during the 2010 fiscal year, which ran from October to September.
Sweeney said businesses are still skittish about taking on new debt as Connecticut’s economy still remains in a precarious position. The unemployment rate remains at 9 percent and Connecticut lost more than 4,000 jobs last month.
“What we are seeing is that people who used to take out loans still aren’t doing it now,” Sweeney said. “We are past the point where businesses that don’t have good finances are getting loans.”
Still Sweeney said he thinks SBA loans in fiscal 2011 will exceed the previous year, as the economy continues to recover slowly and a couple of new SBA loan programs hit the market.
In addition, businesses may for the first time have opportunity to refinance a commercial property through an SBA loan. The Small Business Jobs Act of 2010 expanded the SBA’s 504 loan program, which has typically been available for businesses to finance fixed assets acquisitions. Under the new rules, which are still being hashed out, companies can use it to refinance a commercial property loan.
• • •
Webster targets SBA loans
Webster Bank’s new Small Business Administration guru said the Waterbury-based lender is poised to boost loans to small businesses this year.
John L. Guy Jr., a former Ohio banker with a deep background in SBA lending and other business loans, was recently hired by Webster Bank to widen its foothold in the small business market.
Guy, a former officer with Fifth Third Bank in Cincinnati and Wachovia Bank in North Carolina, joins Webster as a senior vice president and director of business and professional banking within Webster’s retail banking division.
In an interview with the Hartford Business Journal, Guy said Webster plans to place an “increased emphasis on providing capital for small businesses.”
While Guy didn’t attach a money amount, he said he sees great opportunity in the SBA market, where Webster Bank is already a major player.
In fact, the regional banking company has been the lead dog in SBA loan volume in Connecticut for the past three years, including underwriting 68 government-backed loans totaling $21.4 million in 2010.
Guy said he sees the SBA market as attractive because of the many changes made to the various loan programs.
In October, for example, the SBA announced new, permanent loan maximums for several of its loan programs.
Under the Jobs Act provisions, for example, SBA has permanently increased limits under its 7(a) and 504 programs from $2 million to $5 million. For manufacturers and certain energy-related projects seeking 504 loans, the limit is up to $5.5 million. The maximum for international trade and export working capital loans also has been increased from $2 million to $5 million.
SBA also permanently increased microloan limits from $35,000 to $50,000, helping larger entrepreneurs with start-up costs and small business owners in underserved communities.
The effect of these changes, Guy said, is that it will allow larger and more diverse Connecticut companies to access government-backed loans. “It’s going to lead to larger deal sizes,” Guy said.
Greg Bordonaro writes the Financial Sense column every other week. Reach him at gbordonaro@HartfordBusiness.com.
