SBA Loans Dip In State

GRAND RAPIDS  —  After several years of steadily increasing numbers of federal Small Business Administration loans made to Michigan businesses and entrepreneurs, that trend may have reversed itself, with an apparent decrease of approximately 10 percent this year.

Richard Temkin, district director of the SBA in Michigan, said in mid-September that the number of SBA 504 loans was down 12.5 percent statewide, compared to the previous fiscal year. He said the number of SBA 7(a) loans was down 8.5 percent. The federal fiscal year ends Sept. 30.

Temkin said that during the first half of the 2007 fiscal year (beginning Oct. 1, 2006), the number of new SBA loans in Michigan was flat — then it went below flat.

"Our lending, starting in April, has been off," said Temkin.

From 2003 through 2006, the total annual number of SBA loans made in Michigan were 1,717, 2,050, 3,135 and 3,702, respectively, according to the SBA Michigan District Office FY2006 annual report. The total amounts loaned increased each year, too, with the exception of 2006. The total amounts, in millions of dollars, were $377.6, $469.5, $560.5, and $548.9.

So-called SBA loans are actually loans from commercial lenders that are guaranteed by the federal government. The SBA guarantee is intended to make more capital available to people who want to start or expand a small business.

Representatives of some of the banks with the highest volumes of SBA loans in Michigan reported making an increased number of those loans this year, including National City, Huntington National Bank, Comerica and Citizens Bank.

Other SBA lenders, such as Fifth Third Bank, Macatawa and LaSalle, are down this year.

Out of 91 banking companies throughout the state, Fifth Third ranked seventh last year in SBA volume. Julie Steinbeck, an alternative lending specialist at Fifth Third, said this year the bank’s non-SBA small business loans are actually up 22.5 percent compared to last year, "but our SBA production is down."

Steinbeck said a report from the SBA Michigan District shows that Fifth Third had a total of 72 loans as of July 31.

"Last year it was 131," she said.

"I think everyone knows that eastern Michigan is struggling, in that economy," said Steinbeck.

At LaSalle, SBA Lending Specialist Carolyn Anderson said the bank’s numbers are down this year. She noted that LaSalle is in the process of being acquired by Bank of America, and those changes may have something to do with the reduced number of SBA loans.

Last year LaSalle did 86 SBA Express loans, totaling $9.5 million. This year it has done only 28 of those loans, but the total volume is almost $4 million. So they are fewer, but "the (SBA Express) loans we are doing are larger than last year. I think that's a sign of a tightening economy: The smaller (borrowers) just don't have the credit available that the larger ones do," said Anderson

"We certainly have tightened up on the smaller loans. We look a lot closer at the person's resume, if they are starting a business," she said.

Macatawa Bank made 22 SBA 7(a) loans last year, placing it 20th on the SBA Michigan District list of 91 participating lenders. But Jon Harrison, assistant vice president of commercial loans, said the bank’s SBA numbers are down this year.

He said they are "just not getting as many requests for them." His opinion is that there are "fewer applicants, and fewer opportunities out there."

A number of lending professionals mentioned the ailing auto industry and its impact on the economy in southeast Michigan. While SBA loans are dropping overall in Michigan, statistics from the SBA show that this year, in both Kent and Ottawa counties, the number of SBA loans is up.

Most SBA loans are of the 7(a) type, generally used as working capital and to purchase personal property. The other type is the SBA 504 loans, which are fewer in number but for larger amounts. They are for investment in fixed assets only and must result in new jobs or retain jobs that would otherwise have been lost.

In KentCounty as of Aug. 31 (with one month remaining in the federal fiscal year), there were 235 SBA loans, including both 7(a) and 504, totaling $41,829,443, according to Temkin. Last year that number was 216 loans, totaling $31,559,600.

In OttawaCounty as of Aug. 31, Temkin's records show there were a total of 90 SBA loans, with a value of $13,799,330. Those numbers last year were 89 loans totaling $17,368,300.

Sandy Bloem is executive director of the Economic Development Foundation in Grand Rapids, one of several nonprofit Certified Development Companies in Michigan that serve as intermediaries between the banks and small businesses seeking SBA 504 loans.

Bloem said she is seeing a decrease in 504 loans this year. In federal fiscal year 2006, her organization had 49 504 loans approved. "This year to date, we are at 32. We hopefully will increase, maybe up to 40," she said on Sept. 11.

"The good news is, in the first quarter we saw things be fairly slow. In the second, they picked up a little bit, and in the third quarter it's been much more active, from the first of July," she added.

"I think that, based on the losses the Michigan banks have seen, the defaults, they're looking more closely at all of their loans. … I have heard from the different banks that they are tightening credit a little bit," said Bloem.

Dante Villarreal, regional director of the Small Business and Technology Center at Grand Valley State University, said, "We are still seeing a normal level of 7(a) SBA loans that are not tied to real estate." But he noted that the SBA 504 loans tend to follow the real estate market, which hasn't been performing well lately,  and so, 504 loans are down from last year.

"Banks here in Michigan have tightened up their credit requirements," said Villarreal. "In general, I think every type of loan is down somewhat — but it's not a significant decrease, just how the lending climate is right now."

The lenders "are doing more due diligence, looking at loan proposals a little more carefully to make sure it's a good investment for the bank," said Villarreal.