Lending to small businesses has increased from a drip to a trickle, thanks chiefly to SBA guarantees
A year ago, after Rachel Carson's 12-person company, Helicopter Tech, won a big U.S. Air Force contract, Carson needed a line of credit to hire staff and buy equipment. Her company, in King of Prussia, Pa., supplies spare parts to airplane and helicopter operators. Two banks turned Carson down before she landed a $250,000 Small Business Administration-backed credit line from Susquehanna Bank.
Now things look quite different. In late September, when Carson met with PNC Bank about opening deposit accounts, she was asked if she also wanted to apply for a line of credit. "I was surprised they wanted to explore that with me," Carson says. "A year ago the banks weren't lending to anyone." And in mid-October Carson was cold-called by yet another bank offering her an SBA-backed loan.
Carson and other entrepreneurs are looking to take advantage of a window of opportunity that may be closed by yearend. For entrepreneurs with good balance sheets, credit is beginning to flow again, thanks to increased SBA guarantees on loans, healthier balance sheets at certain banks, and signs the economy is improving. The question is whether the new lending will remain restricted to the strongest companies or pick up steam as the economy stabilizes.
Companies in precarious financial positions are still likely to be frozen out. That's a large swath of small operations: 46% of small business owners surveyed by consulting firm Greenwich Associates in the second quarter said their financial situation had deteriorated during the past 12 months.
But average weekly SBA loan volume is now running about 70% higher than it was in January. "Access to capital is improving," says Eric Zarnikow, associate administrator for the SBA's office of capital access. "But it is still tight, and things are a bit fragile."
Such lending is fueled by money from the Recovery Act, which has allowed the SBA to cut borrowers' fees and raise guarantees. The SBA says the stimulus money will last into December, but Senator Mary Landrieu (D-La.) has said funding may run out sooner. The House Committee on Small Business is crafting a bill to extend Recovery Act provisions for the SBA but may not succeed this year. Tony Wilkinson, president of the National Association of Government Guaranteed Lenders, is urging small business owners to apply for loans sooner rather than later.
Even non-SBA-backed loans now may be slightly easier to come by. An October survey by the National Federation of Independent Business found the lending environment had improved slightly since May. And 8 of the top 10 U.S. banks were more willing to lend in the second quarter of 2009 than in the first, according to the Greenwich Associates survey. On Oct. 21, the Obama Administration proposed raising the caps on some SBA loan programs and allowing community banks to tap federal bailout funds if the lenders can show how that money will help them boost loans to small firms.
Michael Selfridge, regional manager for Northern California at Silicon Valley Bank in Santa Clara, Calif., says he now detects a "thawing" in the lending market and has noticed more competition among banks for deals. That's encouraging. But for many entrepreneurs, access to credit is still frozen.