ORANGE CITY, Fla. – Pinnacle Bank made just two loans through the Small Business Administration in 2007 and 2008. So far this year, the bank's total is nine, to borrowers from an auto dealer to a computer-equipment wholesaler to a bakery.
"The SBA program is the only way we can continue to lend right now," says David Bridgeman, president of Pinnacle, which has two branches and assets of $213 million, including about 600 loans. For many of the $3.4 million in loans Pinnacle made through the SBA in 2010, the bank has to set aside capital against only the 10 percent slice that isn't guaranteed by the U.S. government.
Across the nation, many banks have turned to the SBA's so-called 7(a) program to help unfreeze credit. Nearly 3,000 lenders have made 7(a) loans in the current fiscal year, up 21 percent from 2008.
The 7(a) program, the SBA's largest loan program, is hardly a cure for the credit shortage affecting many borrowers. The agency is involved in less than 10 percent of all small-business loans, and some banks won't participate because of red tape. Lenders must follow the SBA's rules when making 7(a) loans, which can be used for working capital, fixed assets and other business expenses. The term of the loan can be as long as 25 years.
Last year, Congress temporarily sweetened the 7(a) program by increasing the SBA guarantee to 90 percent of any given loan from as little as 75 percent previously. Lawmakers waived fees costing borrowers as much as 3.5 percent of the loan amount, as well as costs charged in a separate SBA program providing structured financing for fixed assets.
But the sweetened program is now in limbo, drawing complaints from borrowers and lenders, as lawmakers haggle over broader small-business legislation.
Since the SBA program was sweetened, more than 1,300 lenders that hadn't made an SBA loan since at least 2007 have barreled in, while existing participants like Pinnacle have been pushing more borrowers through the agency's pipeline to take advantage of better terms.
About $16.2 billion in 7(a) loans have been made under the more-attractive terms. By May, the program's loan volume had returned to before-the-credit-crunch levels.
"The extra 15 percent of guarantee helped us stretch a little more," says Vito Pantilione, president of Parke Bank, a unit of Parke Bancorp Inc. The five-branch Sewell, N.J., bank recently used the program to make loans to two printing companies looking to adapt to electronic publishing.
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