SBA makes fewer loans to businesses
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By BRUCE EDWARDS Staff Writer - Published: November 9, 2008
Fewer loans were made by the U.S. Small Business Administration to Vermont businesses, reflecting a national trend.
During the fiscal year that ended Sept. 30, the SBA made 277 loans totaling $45.5 million to businesses in the state. That's a decline from the prior year when the SBA made 360 loans totaling $51.8 million.
Nationwide, the SBA made 30 percent fewer loans in fiscal 2008 while the dollar amount declined 13 percent to nearly $18 billion.
The agency attributed the nationwide decline to several factors: tightened credit, declining creditworthiness and reduced demand for loans. Average loan size increased from $142,000 in fiscal 2007 to $183,000 in fiscal 2008.
In Vermont, the average loan in fiscal 2008 was $164,229, an increase from 2007 when the average loan was $143,837.
The volume numbers represent loans made under SBA's two primary loan programs, the 7(a) and the 504 program.
Loan volume nationally in both programs set records in each of the previous five years.
Darcy Carter, the SBA's Vermont director, said fiscal 2008 saw the biggest drop in loans since the 9/11 terrorist attacks.
"There are different things that go on that contribute to our loan demand and you want to say right now it's the economy," Carter said.
The number of SBA loans started to decline in the state after 2005 when Citizens Bank, a large regional bank, scaled back on the number of SBA loans, Carter said.
In fiscal 2006 and 2007, Citizens Bank led the state in the number of SBA loans while Chittenden Bank was far and away the biggest lender in terms of money loaned.
In the fiscal year that ended, Chittenden Bank made 55 SBA loans totaling $7 million. Citizens Bank made 43 loans totaling $1.8 million. TD Banknorth made 23 loans totaling $5.9 million.
While Citizens Bank made fewer SBA loans last year, bank spokeswoman Brigitte Ritchie said the bank's volume of all business loans this calendar year has increased 64 percent.
"We endeavor to put our customers into the best products or services that work for them," Ritchie said. "Our SBA numbers are down but the increase in our portfolio indicates our commitment to our small business customers."
She also said bank mergers have resulted in fewer banks making SBA loans. When that happens, she said loan volume, at least in the short term, is often cut in half during the transition period. Add to that, she said is tighter credit standards.
Carter said the positive side of the current economy is that the cost of borrowing has come down and the SBA's lending standards haven't changed. But she also said it's the bank that decides whether to make an SBA loan and if a bank tightens its lending standards that can affect the loan decision.
During the last fiscal year, 30 banks made SBA loans to Vermont businesses.
SBA loans often help new businesses get off the ground when banks are reluctant to take the risk without some guarantee, which the SBA's loan programs offer.
Carter did not have access to loan data but said that SBA loan delinquencies are "up a bit."
The SBA 7(a) program has an upper loan limit of $2 million with the SBA providing a loan guarantee of up to 75 percent. The loan can be used for the purchase of real estate, equipment or used as working capital.
The CDC/504 program works in conjunction with a community development corporation like the Vermont Economic Development Corp. A 504 loan is designed to create jobs. It's used for long-term financing for the purchase of land or buildings covering up to 50 percent of the project cost. The maximum loan is between $1.5 and up $4 million for a manufacturer. The business is required to pay 10 percent of the cost.
Most of the loans made are of the 7(a) variety. There were 234 such loans made in Vermont in fiscal 2008 totaling $32 million.
The SBA is taking a number of steps to free up credit including:
Contact Bruce Edwards at bruce.edwards@rutlandherald.com.
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