Connecticut Small Business Administration lending activity fell by 19 percent in fiscal 2012, as new competition from state programs and the expiration of higher loan guarantees from the federal government ate into some deal flow, officials said.
Loans backed by the SBA to small businesses in Connecticut totaled $228.7 million in fiscal 2012, which ran from Oct. 1 to Sept. 30.
Overall there were 644 SBA related deals completed last year. That number includes loans issued from the SBA’s 7(a) and 504 loan programs as well as a microloan program. They all aim to provide greater access to credit for small companies that don’t qualify for traditional bank lending.
In fiscal 2011, the SBA was part of 737 deals worth a total of $281.9 million.
Bernard Sweeney, district director of the Connecticut SBA Office, said loan volume and totals were down last year for several reasons. The ailing economy is still making borrowers skittish about taking on new debt.
But the state’s new Small Business Express program, which is providing forgivable loans and grants to small businesses, is also eating into their deal flow, possibly taking away as much as 25 percent of loans under $100,000.
The expiration of a host of enhancements to SBA programs, including a measure that raised the guarantee on 7(a) loans from 75 percent to 90 percent, also reduced lending last year, Sweeney said.
“The numbers aren’t bad but we are not showing we are out of the recession yet,” Sweeney said. “However there does appear to be light at the end of the tunnel.”
The SBA has two major loan programs.
The 7(a) program is the most popular SBA product. The SBA doesn’t provide direct funding for it, but it guarantees up to 75 percent of a loan made by a private lender. President Obama’s stimulus package passed in 2009 increased the loan guarantee to 90 percent for a period, but that has now expired, which has likely reduced deal flow.
A total of 508 deals worth $151.6 million were completed under the 7(a) program in Connecticut last year.
Farmington Bank was the most active 7(a) lender, doing 57 deals worth $8.6 million. Webster Bank, First Niagara, People’s United Bank and JP Morgan Chase rounded out the list of top five lenders doing 50, 41, 39, and 27 deals respectively. First Niagara had the largest 7(a) loan amount output at $14.8 million.
The other major SBA program is the 504 loan, which provides financing to companies for job growth and business expansion. The loans are typically structured with SBA providing 40 percent of the total project costs, a lender providing 50 percent of project costs and the borrower providing 10 percent equity.
During fiscal 2012, 504 loan volume included 68 deals with SBA providing $33 million in funds and private lenders providing an additional $43 million in funds.
Prior to the recession, Sweeney said total annual deal flow would range anywhere from 750 to 900 loans, but they haven’t approached those levels in years.
One of the issues, Sweeney said, is that big banks have significantly shrunk their SBA activity in the state since the 2008 financial crisis, and smaller community and regional banks don’t have the wherewithal to make up for it.
Bank of America, for example, only made three 7(a) loans in Connecticut last year, worth a total of $1.3 million.
“The big banks don’t seem to have an appetite for smaller businesses,” Sweeney said. “If it’s a deal under $5 million, there isn’t a lot of effort being made by the bigger banks. It’s the smaller banks that are really doing the bulk of the loan program.”
Bank of America spokesman T.J. Crawford said SBA lending accounts for a small percentage of the bank’s total loans locally and nationwide, but they have generated nearly $422 million in small business loan originations in the state through the third quarter of 2012.
“Looking solely at SBA loan generation data doesn’t tell the full story about how we’re helping small businesses grow,” Crawford said.
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Credit union merger OK’d
The Connecticut Department of Banking has given its blessing to the merger of two local credit unions.
Wethersfield’s Hartford Postal Employees Credit Union has merged into American Eagle Federal Credit Union and will proceed under that banner.
As of Oct. 1, online inquiries were redirected to americaneagle.org. Hartford Postal’s branch has already been converted into an American Eagle branch.
Dean Marchessault, executive vice president and chief operations officer at American Eagle, said a new ATM at the branch has also been installed and they have converted it to American Eagle’s operations system.
Barton Werner, the CEO of The Hartford Postal Employees Credit Union, told the Hartford Business Journal earlier this year it was increasingly difficult for his tiny $13 million credit union to keep up with all the different regulations coming from policymakers and regulators.
Greg Bordonaro writes the Financial Sense column every other week. Reach him at gbordonaro@HartfordBusiness.com.
