BRADENTON — Small business owners LaJuana Pruitt and Chip Boyd are special cases in this economy.
That’s because each received a Small Business Administration loan for their Bradenton-based businesses at a time when banks aren’t as eager to lend.
Not even when it’s SBA guaranteed.
“It’s going to be easier on me financially with this loan,” said Pruitt, referring to a $50,000 SBA loan her business, Premier Video Productions, Inc., will receive.
Economic conditions are creating a gap between the demand for SBA loans and the number of banks willing to lend.
And while the SBA has plenty of guarantee authority available, banks under stricter lending practices are causing a drop in the number of SBA loans issued, said John Dunn Jr., assistant district director of lender relations for SBA’s South Florida district.
“These are times unlike many people have seen before and lenders don’t do magic,” Dunn said. “They have a very simple system of making loans.”
That system is the rule of five Cs. When approving a loan banks look for character, collateral, capacity, capital and conditions.
“In the economy that died two years ago, if you’d had three of the Cs you could probably get a loan,” Dunn said. “Now in the economy we’re in, you’ve got to have all five Cs or you don’t get a loan. If you’ve got four of them maybe you get an SBA loan. If you’ve got three, it’s hasta la vista.”
As a result, SBA’s South Florida district, which includes Manatee County, has seen lending drop significantly this fiscal year compared to last year.
So far in fiscal year 2009, from Oct. 1, 2008 through May 31, 2009, the SBA’s 7a loan, which helps small businesses obtain financing when they may be ineligible for loans through traditional lending options, was issued to 469 businesses, totaling $148 million, compared to the 1,899 loans totaling $343 million during the same period last year.
The 504 loan program, which gives long-term, fixed rate financing to businesses seeking to buy real estate, equipment or expand, was issued to 164 businesses at $86 million this fiscal year, down from $164 million for 273 businesses last year.
And for total loan activity in Manatee County, 13 businesses received loans worth $4.9 million, down from 41 loans at $5.5 million the previous year.
Pruitt sought assistance from Bradenton’s Central Economic Development Center after First Bank denied a loan for her video production company, which specializes in video court reporting, video depositions and documentaries.
The $50,000 SBA Community Express loan will be used to put Premier Video in position for future growth by remodeling the office to include satellite offices that can be rented from other court reporting firms.
Boyd also received a $50,000 SBA veteran’s loan for his martial arts supplies company in Bradenton, Samson International. With his loan he will be able to introduce new product brands to his company by ordering merchandise from a popular sporting company in Australia, Sports Master Athletic International.
“What this does is it opens up a market for me that was previously closed,” Boyd said.
Veatrice Farrell, associate director of finance for the Central Economic Development Center, assisted both businesses with obtaining the SBA loans at a time when the SBA technical assistance provider is seeing more local demand for the small business financing.
“It’s been an increasing demand for SBA loans because of the ARC loan and because, nationwide, banks are in trouble and the SBA is a good alternative to bank lending,” Farrell said.
On June 15, the SBA started a new loan program called America’s Recovery Capital loan program, or ARC loan, which provides up to $35,000 in short-term relief for small businesses in immediate financial hardship.
Nationwide, the program has $255 million available and as of June 22, 72 loans totaling $2.4 million were issued nationally.
With the introduction of the ARC loan and more interest from community banks to become SBA lenders, Dunn expects SBA lending activity for the South Florida district to improve over the next two months.
“Right now, I have 10 applications from small community banks to be SBA lenders. Usually I’m lucky if I have one in process at any given time,” Dunn said. “The demand for loans is increasing and in some great part, community banks are filling the void left by the big boys.”
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