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Thursday, Feb 22, 2024

Institutions Large and Small Are Eliminating SBA Lending

The Small Business Administration has seen some of its largest lenders simply drop out of the 7(a) loan program that represents the bulk of its activities. When an organization the size of Bank of America closes its SBA lending unit, it’s not surprising to hear that smaller community institutions like Americas United Bank in Glendale have thrown in the towel as well. For the past 20 years, Arturo Concha has focused his career on making loans to small businesses through the SBA programs. The senior vice president of SBA lending for Americas United Bank left when the bank decided to stop making the 7(a) loans. “The bank put its SBA lending on hold because nobody is buying (the loans) in the secondary market,” said Concha. “That’s why everybody’s gotten out of it. There’s no liquidity.” That’s hurt small banks in particular who are loathe to tie up their precious capital. “Most banks relied on the secondary markets to get the loans off their books so they can keep lending,” Concha said. Liquidity and the secondary market was mentioned as the crux of the problem facing the SBA loan guarantee program by every expert interviewed for this article. “I think basically what you saw is a lot of banks got into SBA lending because they could make money on the secondary market and they didn’t really know what they were doing,” said Paul Foster, SBA operations manager for Excel Bank in Beverly Hills and Encino. “If you don’t document an SBA loan the right way, they’ll either reduce the amount of the guarantee or deny it outright. If you look at one of our SBA files, they’re anywhere from 8 inches to 1 foot thick.” Nationally, the number of loans in the 7(a) program backed by the government, which doesn’t actually lend the money but rather guarantees loans made by other institutions, dropped 57 percent in the first quarter of its fiscal year which ended Dec. 31. The total dollar value of 7(a) loans processed by the agency decreased to $1.95 billion, a drop of 40 percent from the previous year’s first quarter. “The SBA is a complete mess right now,” said Roberto Barragan, chairman and CEO of the Pacoima Federal Credit Union. That organization is limited in the number of SBA loans it can generate because of restrictions on credit union loans to businesses. Barragan was in Washington, D.C. earlier this month and has another trip planned to lobby for those restrictions to be revised. “We’re really pushing for them to allow credit unions to be able to do more SBA lending,” he said. Right now, they can only commit 10 percent of credit union assets to business loans, including those with SBA guarantees. But there are still some local venues where entrepreneurs will be welcomed with open arms. One of those is Mission Valley Bank, headquartered in Sun Valley, which has actually increased the amount of lending they’ve done in the SBA program. In 2007, they made 20 loans with a total value of $1.6 million. This past year ending Dec. 31, the number of loans decreased slightly to 17, but the amount jumped to $5.3 million. “Our SBA department is only three years old,” said Vladimir Victorio, senior vice president and manager of SBA lending at Mission Valley. “We’ve always been a portfolio lender which means we book the loans and keep them on our books so we’re not dependent on the secondary market. There’s more demand for sure.” On the large institution side, Wells Fargo has also continued full bore with its SBA lending, with more than $172 million going to California businesses through the program. That made it the top SBA lender in the state for the federal fiscal year that ended Sept. 30. TALF to the rescue? On March 3, details of how the Term Asset-Backed Securities Loan Facility, or TALF, were released by the U.S. Department of the Treasury. The Federal Reserve Bank of New York will lend up to $200 billion to qualified holders of SBA-guaranteed small business loans as well as some other AAA-rated asset-backed securities that include auto, credit card and student loans. The hope is that this will stimulate the liquidity that the secondary market provides. “Will TALF help? We certainly hope so,” said Bob Coleman of La Canada Flintridge, publisher of The Coleman Report and other financial information related to small business financing. The second part of the package, said Coleman, is supposed to allow the SBA to increase its guarantee from 75 percent up to 90 percent and also to temporarily reduce or even eliminate borrower and lender fees. “I think any venue that will get money to Main Street whether it’s credit unions, small banks, large banks, whatever should be supported,” said Coleman. CORRECTION – March 30. There were two errors in the story “Institutions Large and Small are Eliminating SBA Lending” in the March 16 issue. Bank of America has not exited the SBA program. “Bank of America is still active in the SBA 7(a) and 504 loan programs,” said a spokesperson. In 2008, B of A made 88 loans with a total value of $2.9 million in the greater San Fernando Valley region, placing it at number 25 on the Business Journal list of Largest SBA lenders. Americas United Bank said that at no time have they placed the SBA 7(a) program on hold. “While our loan volume has declined along with those of most other banks in the program we are clearly still in the SBA business,” said President Gil Dalmau. In 2008, Americas United made four loans with a total value of $2.6 million in the San Fernando Valley region, placing it at number 28 on the Journal’s Largest SBA lenders list. Dalmau also pointed out that the statistics used in the development of that list only reflect lending in the San Fernando Valley and he said that the bank has done a significant amount of lending in other SBA districts. As a further point of clarification, statistics and comments in the article specifically referenced just the SBA 7(a) loan program, not the SBA 504 real estate loan program.

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