Business loans: SBA programs are available, but banks hesitant to lend

Despite several federal programs, banks only lending to best customers

By Marcia Heroux Pounds

South Florida Sun-Sentinel

July 5, 2009

The Obama administration is pushing to get loans flowing again to small business, but big banks are balking, leaving many business owners frustrated.

The problem is many banks last year essentially stopped making loans guaranteed by the U.S. Small Business Administration.

“I can’t expand, I can’t do anything; I’m really financial crippled,” said Michael Yolich, owner of a 17-year-old Pompano Beach printing business. Yolich said a loan would help him reduce his debt and revive his business.

In South Florida, Bank of America has made only 27 general purpose 7(a) SBA loans so far this year compared with 546 for the same period a year ago. Capital One has made no loans in 2009 compared with 118 for the same months in 2008. Both were once top lenders to small business.

And that’s an uptick from last fall, when loans fell drastically, said John Dunn, assistant district director for the SBA in South Florida. SBA-guaranteed loans fell from 4,163 loans worth $623.7 million in fiscal year 2007 to 2,391 loans worth $503.98 million in fiscal year 2008.

“Two years ago we were the king of the mountain,” he said.

The SBA, with new powers from the Obama Administration’s stimulus plan, has dropped bank fees and increased its guarantees on loans, and some lenders are coming back, Dunn said. For small businesses, the agency is offering a refinancing option and a new loan aimed at reducing debt.

On June 15, the SBA kicked off its America’s Recovery Capital loan program, a new loan up to $35,000 for trimming small firms’ debt on high-interest credit cards and existing loans. The loans are 100 percent guaranteed by the SBA. There’s only $255 million available nationwide for ARC loans and small businesses quickly began knocking on lenders’ doors.

But so far, few lenders seem to be answering. At a recent Palms West Chamber of Commerce event, SunTrust, National City, Chase, Wachovia and TD Bank said they planned to participate in the ARC program. But several small businesses say their banks are telling them they’re not offering the debt-reduction loans or are only giving the loans to long-term existing customers.

In the first two weeks of the ARC program, only 139 loans worth $4.6 million were made nationwide, according to the SBA. South Florida District spokeswoman Althea Harris said the good news for small business is there’s plenty of money left. “Small businesses can take time to get prepared. They don’t have to panic.”

Mary and John Downs have operated a Dania Beach metal fabrication shop for more than 30 years. Sales have dropped 30 percent in the recession, and the Downs would like to get an ARC loan to help the business until conditions improves. “It would give us a little breathing room,” Mary Downs said.

But Bank of America, where the Downs do their business banking, told her they are not participating in the debt-reduction loan.

Bank of America, which has received $45 billion from the federal government under Troubled Asset Relief and related to its acquisition of Merrill Lynch, said last week it is still reviewing the loan program. “Because of the limited scale of the program, we are evaluating whether this is the most effective way to help small business owners,” said a spokeswoman for Bank of America in an e-mailed response.

A Capital One spokesman also said the lender is not participating in the ARC loan, but has other loans available for small business.

The ARC loans are too expensive for banks to implement, said Christopher Hurn, chief executive of Mercantile Capital Corp., a lender which participates in the SBA’s 504 loans for purchase of real estate or equipment. “They’re doing them as favors to customers.”
Dunn, the SBA official, said the alternative to more bank cooperation is for many small business owners to default on their existing loans.

“The bank is getting a 100 percent guarantee. I don’t understand why a bank wouldn’t take a half hour to save that customer. Is it too much work to save a working family?” he said.

Some small businesses are finding help through community lenders.

Allen Borza and Clara Mateus, husband-and-wife graphic artists in Greenacres, were laid off one day in March within hours of each other. They decided to expand the side business they had started on weekends, rather than frustrate themselves trying to find new jobs in a tight market.

The couple recently snagged a $50,000 loan backed by the SBA. But they didn’t get it from their bankers in South Florida. They found their seed money through Borrego Springs Bank, a Native American-owned bank in California. The bank has a commercial branch in Panama City.

For the fledgling business, called Green Group Studio, to get a loan is “pretty remarkable,” said Phil Scruton, business analyst with the Small Business Development Center at Palm Beach Community College in Boca Raton. “Lenders are looking real hard at resumes and qualifications to do business.”

Dunn said small businesses seeking loans need to be realistic about their business projections when they approach their bank for a loan. “If you’re losing money for three years and bring in projections that you are going to break earnings records, how real is that?”

The hard truth for many small businesses in this recession is that if they can’t show the banker they will rebound and be able to repay the loan, “it might be time to pull the plug,” he said.

Marcia Heroux Pounds can be reached at or 561-243-6650.

Copyright © 2009, South Florida Sun-Sentinel