SBA loan volumes decrease despite push for startups

When Dr. Chase Kelly graduated a year ago from University of Missouri-Kansas City, he knew he wanted to start his own dental practice. He also knew he didn’t have enough working capital to secure a traditional bank loan.

So he turned to a loan through the U.S. Small Business Administration.

“My net worth was very poor, but I knew I could run a practice,” Kelly says of his loan options. “My banker helped me come up with a creative solution that involved an SBA loan, and I became a business owner.”

Financed through The Bank of Missouri, Kelly purchased a 1,000-patient practice from retiring Dr. Irv Miller for undisclosed terms and opened shop as Kelly Dental.

The SBA loan program is one of several enacted during the 111th Congress to enhance small-business access to capital. The American Recovery and Reinvestment Act of 2009 provided the SBA an additional $730 million, including funding to temporarily subsidize SBA fees and increase the program’s maximum loan guaranty percentage to 90 percent, according to the U.S. Treasury Department. In addition, the Small Business Jobs Act of 2010 authorized the Secretary of the Treasury to establish a $30 billion Small Business Lending Fund, of which $4 billion was initially issued, to encourage community banks with less than $10 billion in assets to increase their lending to small businesses.

In fiscal 2013, the Springfield SBA branch issued 351 loans for more than $103.6 million, supporting 3,331 existing jobs and creating 1,274 jobs across its 28-county footprint. However, activity is down 32 percent from the 385 loans for more than $151.5 million issued in fiscal 2012.

Springfield SBA Branch Manager Suzanne Stearman said despite a decrease in total loans issued, loan averages are up, coming in at $295,283.

“The average loan amount has been increasing over the last several years. This is why SBA is currently waiving the guarantee for loans up to $150,000 until Sept. 30 to encourage smaller loans,” she said. “We also are waiving the guarantee fee to veterans under the SBA Express program up to $350,000.”

The normal guarantee fee on a loan is 2 percent of the guaranteed amount of the loan, typically 85 percent for loans up to $150,000. For loans between $150,000 and $700,000, the fee is 3 percent of the guaranteed amount of the loan, typically 75 percent.

“By waiving the fee for loans under $150,000, SBA hopes that more smaller loans will be made especially to startup businesses,” Stearman said. “This can be a savings to the borrower up to $2,550, depending on the amount of the loan.”

So far in fiscal 2014, the incentive hasn’t quite panned out. Stearman said the branch has 192 loans totaling about $66.4 million as of May 14, slightly behind in the number of loans issued and slightly ahead in total value compared to the same time last year.

Southwest Missouri banks posted a mixed bag in SBA loans to close out fiscal 2013. The region’s top six SBA lenders, according to Springfield Business Journal research, all posted decreased numbers in fiscal 2013, with loan leader Liberty Bank down 12 percent to $36.5 million. RMI Missouri Southwest was down 60 percent to $17.2 million and Arvest Bank’s SBA loan activity slid 54 percent to $5 million.

Still, other lenders posted triple-digit percent increases in loan values. Metropolitan National Bank is up 116 percent to $1.1 million, UMB Bank rose 510 percent to $2.3 million and Mid-Missouri Bank posted a 590 percent increase to $2.1 million.

“We had one really large loan and a dozen or so of what I call ‘base hits,’” said Mid-Missouri Bank President and CEO Eric McClure. “We saw both more loans and higher loan amounts, however, it was a loan for over $1 million that really put us over the top.”

McClure said the current incentive makes SBA loans attractive for startups, but his bank also see numerous business owners who are looking to expand their current offerings.

“Without the government guarantee, the risk of financing a startup business is just too high for banks in this economy,” he said. “SBA loans allow us to fund more locally.”

For the 2014 calendar year, McClure said the bank hasn’t signed any large loans, but the base hits keep coming.

UMB Greater Missouri Region President Ann Marie Baker said UMB Bank’s Springfield center is in much the same situation – more loans for higher amounts, with loans averaging $386,000.

“We had only three SBA loans in 2012. In fiscal 2013, we doubled that,” she said. “I wouldn’t say we’ve had a push for SBA loans, but rather they attribute to our focus on commercial banking in general. SBA loans are a component we use when appropriate and a valuable tool in our toolbox.”

Baker said she’s noticed a change in the types of companies that apply for SBA loans, noting a traditional focus on manufacturing and wholesale companies has shifted toward professional services, such as attorneys and health care.

“Our 2014 calendar is seeing a lot of good commercial activity in all loan areas,” she said. “Rather than startups, we are seeing a lot of acquisitions by companies looking to expand.”

McClure echos Baker’s thoughts. In calendar 2013, Mid-Missouri closed $424 million in total commercial loans. Just six months into 2014, the bank already has closed $438 million.

Baker believes the increased acquisition market is a lingering result of the Great Recession.

“I see this as a positive sign as companies are feeling confident enough to expand,” she said. “I think there are more of these moves ahead.”