Small businesses, banks swim in available government loan programs

Springfield businessman Andy Kuntz knows a thing or two about running a business. As president and co-owner of the popular local chain Andy’s Frozen Custard Inc., he is leading company expansion both through company-owned stores and franchising, with plans for five to seven new stores in 2013. Kuntz said small-business growth starts with smart money management, and he’s tapped the U.S. Small Business Administration loan programs.

“The fact that the loan is a long-term secured rate really adds to your peace of mind as a business owner,” he said. “It can be a painful process to get your ducks in a row and get all the paperwork done, but it’s an awesome program and worth the effort.”

Kuntz said he currently has two 10-year SBA loans with a 3.3 percent interest rate and two 20-year SBA loans at 4.2 percent interest. He said the company plans to utilize SBA loans for three more corporate stores to be constructed in 2013, one in Fayetteville, Ark., and two in Chicagoland.

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 Small Business Administration 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.

Lending boost
Springfield-based Great Southern Bank led Missouri banking institutions that receive SBLF capital funding, loaning $82.8 million above its baseline as of Sept. 30, 2012, and shooting up 41 percent, increasing fund lending for the sixth consecutive quarter.

“I would attribute the success to our increased focus on commercial and industrial lending,” said Cyd Everett, director of retail lending for Great Southern, citing a 2010 reorganization and restructure of the loan department. “We are fortunate enough to be in a marketplace which utilizes a variety of loans from agriculture to building.”

As established in the 2010 act, the baseline for measuring the change in small-business lending is the average of the amounts reported for each of the four calendar quarters ending June 30, 2010.

Everett said Great Southern entered the program in August 2011, with an initial investment of $57.9 million in the company’s preferred stock from the Treasury Department.

“The timing of the program was very appropriate for us with the restructure and in terms of where we wanted to head,” Everett said. “Our focus on loans to small-business owners and others is our primary focus going forward.”

The SBLF program reduces the dividend, or interest rate a community bank pays on funding, as the bank increases its lending to small businesses. As of Sept. 30, the average rate paid by community banks on SBLF capital was 2 percent. However, banks can reduce the rate to 1 percent by increasing qualified small-business lending by more than 10 percent of their baseline, according to the Treasury Department. Great Southern is currently at a 1 percent rate.

Buying out
On the other end of the scale in Missouri, Springfield-based Liberty Bancshares Inc. decreased lending by $60.4 million below its baseline, falling 19.8 percent. However, Liberty’s Senior Vice President Eldon Erwin said the Jan. 8 report doesn’t give the whole picture.

“Liberty Bank was a participant in the SBLF program but exited the program by repaying all the SBLF funds it had borrowed from the U.S. Treasury in December of 2012,” Erwin said in an email.

Erwin said the bank repaid nearly $23 million to opt out of the federal program, citing an increase in SBA lending.

“Liberty Bank reported an 19.8 percent decline … primarily due to the fact that the guaranteed portion of SBA loans are excluded from the SBLF loan growth calculations and a disproportionate number of the bank’s small-business customers have been paying down their respective loans to deleverage their financial position and create cash reserves,” he said, adding Liberty’s initial involvement in the program acted as a safety net to an unstable lending atmosphere during the start of the recession. “Liberty Bank elected to repay the $22,995,000 that it had borrowed … because of its strong capital and liquidity position.”

Ranked the No. 1 SBA lender in southwest Missouri for the 15th consecutive year and 32nd in the nation in 2012, Erwin said he was confident Liberty Bank would continue to meet the needs of its customers without the SBLF program.

Erwin said during the SBLF baseline calculation period of June 2010 through June 2012, Liberty Bank generated more than $411 million in new loans, and in the same time frame originated more then $85 million in new SBA loans.

Lending future
Despite Great Southern’s SBLF lending increase, Everett said she expects loan growth to fall flat in 2013.

“Loan demand remains relatively stagnant,” she said. “It has its peaks and valleys, which we see here, but I don’t think it has or will return to the robust pace it had been.”

According to the FDIC market share report, Great Southern’s overall loans and leases totaled $2.3 billion as of Sept. 30, 2012, up from $1.9 billion during the same time period in 2011. Liberty’s overall total loans and leases tallied $845 million in 2012, down from $871 million in 2011.

Erwin said consumers are currently looking to eliminate debt, rather then take it on, but consumer perception is on the rise.

“Loans are down, there is no doubt about that, but things are starting to pick up and that’s a positive thing,” he said.[[In-content Ad]]