Story from the Wichita Eagle
Slowly but surely, the impact of the federal stimulus package on small businesses and lenders is unfolding.And the net effect so far has been a significantly increased interest in U.S. Small Business Administration-backed loans by borrowers and lenders.
Calls to the SBA's Wichita district office have increased about 50 percent, to 100 a week, since the Recovery Act became law Feb. 17, district director Wayne Bell said Friday.
Nationally, loan volume for SBA's two most popular loans is up 25 percent since mid-March. Local bankers and SBA officials don't have specific figures, but they say SBA business is on the upswing.
"We're seeing a lot more interest and getting more outside inquires," said Doug Neff, executive vice president for commercial banking at Commerce Bank.
More than half of the $730 million in the Recovery Act funding has been targeted to make it easier for small businesses to borrow.
In addition, all SBA fees that borrowers have had to pay have been eliminated through Dec. 31. Typically, those fees amount to 2 to 3 ½ percent of the loan, Bell said.
Banks have also had a renewed interest in making SBA loans after two key incentives out of the Recovery Act were announced in March:
• The SBA increased its guarantee to 90 percent from 75 percent on most loans up to $2 million.
• Maximum guarantee on surety bonds for small businesses competing for public construction and service contracts more than doubled to $5 million from $2 million.
Karen Mills, the SBA's new director, said 1,200 banks across the country have recently returned to making SBA loans and others are participating for the first time. Most of those banks are on the coasts, where there have been greater lending woes.
Local bankers and SBA officials said the Midwest and Kansas in particular didn't experience those kinds of extremes, so the swing in banks jumping on board in this area isn't nearly as great.
But Brenda Murray, a business development specialist with the SBA's Wichita office, said, "I am hearing from bankers I haven't talked to in a long time. Between the 90 percent guarantee and the surety increase, banks are motivated to look at things they wouldn't normally do."
None of the new programs has caught the attention of small business owners more than the announcement earlier this week that SBA will start guaranteeing interest-free, payment-deferred catch-up loans of up to $35,000.
Applications for those loans won't be taken until June 15, but lenders and the SBA office have already been getting a rush of calls from potential borrowers.
Unfortunately both lenders and local SBA officials won't receive all the final details of the program until June 8.
"Everyone is trying to figure this out right now," Neff said.
They are known as America's Recovery Capital loans, or ARC loans. As suggested by the name, they are designed to help small businesses recover and not invest in expansion.
Bell said the loans are specifically designed for business having a cash flow problem. In fact, the loans can only be used for existing business debt, such as loan payments, account payables, mortgages and a company credit card.
Repayment doesn't begin until 12 months after the final loan disbursement and borrowers have up to five years to pay it off.
The SBA will pay the lenders the interest on the loans. Bell said the interest will probably be a point or two above the prime rate.
"It'll be something reasonable," Bell said."... Right now, we don't know all the details."
Applications for the ARC loans are made directly to the lenders.
"The SBA has decided the economy is a disaster nationally," said Scott Soderstrom, the small-business lending officer at Intrust Bank. "They figure lenders can critique the applicants faster than they can, which is true."
