Minnesota Banks Issue 20% Fewer SBA Loans
Friday, 03 October, 2008
Entrepreneurs, bankers each cite the other's reluctance to take risks in a troubled market
In another sign that the credit crunch is pounding Main Street, lending through the U.S. Small Business Administration program in Minnesota is down this year — way down.
As of Tuesday, the end of the SBA's fiscal year, lenders granted 20 percent fewer SBA loans in the state than they did last year. The dollar amount dropped 12 percent. The drop nationwide was even steeper.
Lenders and small-business borrowers have different explanations for what is going on.
Lenders say the shaky economy has pushed entrepreneurs into a holding pattern. They say small-business owners appear to be waiting for things to get better before they take on more debt.
"Some of it is people's reluctance to open a business or purchase a going concern in the midst of a market correction that's impacting sales, margins and operating costs," said Rick Beeson, president of Park Midway Bank in St. Paul. Park Midway did 8 percent fewer SBA loans this year than the year before.
But entrepreneurs and their advocates balk at the suggestion that business owners are timid. It isn't the business owners who are pulling back, they say. It's the banks.
"Yes, amongst entrepreneurs there is a risk adversity, but it's not anywhere near what I am facing with the banks," said Diane Paterson, a business consultant with St. Paul-based Women Venture. "I am seeing a decrease in SBA lending because the banks are risk averse."
Jim Keenan said he and his wife Stephanie tried to get an SBA loan
to finance the purchase of a resort in Park Rapids, Minn., that had been closed for five years.
Despite experience running a business — he started a psychology practice 12 years ago — and a credit score around 780, Keenan said, he got shot down three times. He said he had some money for the down payment, but not a ton.
"Maybe I am naive for not knowing what SBA was," Keenan said. "But I thought that's where a guy who doesn't have all the money goes."
And he wasn't offered any other good loan option. So, Keenan bought his resort, Vacationaire, on a contract for deed and used credit cards to make it happen.
Women Venture’s Paterson said she had a client who was close to approved for an SBA loan with a lender in town.
"We got down to the end, and they came back and said, 'We lent all of our allocated SBA funds; we don't have any more,' “Paterson said. "It just blew my mind."
Mike Ryan, director of the Small Business Development Center at the University of St. Thomas, said that from what he's seen, bankers are being more cautious in their lending.
"They don't say they're changing their practices, but they may be doing it without even realizing," he said.
Not all lenders in Minnesota reduced their SBA lending. Associated Bank, for example, more than doubled its total, to 135 loans this year, compared with 55 last year. St. Paul-based Bremer Bank also increased its SBA lending.
Mel Aanerud, assistant director in the Minnesota SBA office, said it looks like lenders might be migrating toward making bigger loans, but fewer of them.
"The smaller loans that are more risky, they just aren't doing," he said. "I think a year ago, some of those probably would have gotten approved. Today, it's just a different world — at least it is for a little while."
Source : http://www.twincities.com
