MICHIGAN — A dip in U.S. Small Business Administration lending in Michigan during the past year doesn’t mean fewer businesses are borrowing money.
Quite the opposite, actually.
As the state’s economy gets better, fewer businesses were referred to an SBA lending program that can help a borrower secure a loan when they may not otherwise fit a bank’s lending standards.
“As businesses are getting stronger, more businesses are being supported through conventional loans,” said Brian Black, business banking executive at Fifth Third Bank in Grand Rapids.
Overall lending in Michigan through two SBA programs, known as 7(a) and 504, declined in both the number of loans and dollar value between the 2012 and 2011 fiscal years. 7(a) lending declined for the year, offsetting an increase in the smaller 504 program.
Between the two programs, the SBA backed 2,075 loans overall in FY 2012 in Michigan for $729.1 million, versus 2,303 loans for $798.3 million in FY 2011.
Using the SBA programs allows borrowers to obtain better lending terms. A bank lending through the SBA can mitigate risk because it can fully amortize a loan over a longer period.
Black attributes the overall decline in SBA lending to fewer businesses needing the SBA’s backing to get a loan.
“The ideal (situation) for a business owner is not to require the SBA’s support,” he said.
Black notes that Fifth Third’s commercial lending overall for 2012 is up about 10 percent from the prior year, the result of higher demand driven by the state’s rebounding economy.
“A lot of businesses are back in business and thinking about expansion and how that may come about,” Black said. “We’re going to have a growth year, year over year.”
As more businesses seek loans, “they’re doing it cautiously and conservatively” as they bring in new business, he said. “They are being proactive — ‘I have this new contract and I need to fund it.’”
Lending in the state under the SBA’s primary 7(a) program declined during FY 212 and increased under the 504 program.
The SBA backed 1,742 loans under 7(a) during the just-completed FY 2012, totaling $551.2 million, which compares to 2,303 loans for $689.4 million in FY 2011. SBA 7(a) loans typically go for a special purpose such as expanding into exporting, or for an acquisition, starting a new business or expanding an existing business.
Huntington National Bank was again by far the largest 7(a) lender in Michigan for the fiscal year, writing 611 loans for $128.8 million. Most of the 7(a) loans that Huntington wrote came through an express program that expedites the lending process.
JPMorgan Chase Bank was second in the state with 191 loans for $16.6 million, followed by Citizens Bank, Fifth Third Bank and Charter One Bank.
Loans made under the 504 program increased to 333 for $177.9 million in FY 2012, which compares to 240 for $108.9 million in the prior fiscal year. 504 loans are typically used for capital projects or acquiring fixed assets and are coordinated by local certified development corporations, or CDCs.
The Lansing-based Michigan Certified Development Corp. led the state by processing 153 loans under the 504 program for $87.6 million, followed by the Economic Development Foundation in Grand Rapids with 68 loans for $36.3 million. Lakeshore 504 — a Holland-based CDC that operates through chambers of commerce in Holland, Grand Haven and Muskegon — had 23 loans for $12.0 million.
Economic Development Foundation President and Executive Director Sandra Bloem termed FY 2012 “a really good year” as the number of loans the CDC processed grew by 90 percent and the dollar value increased 127 percent.
About 25 percent to 30 percent of the 504 volume came from companies refinancing existing debt, an ability that expired Sept. 27 and that Congress has yet to renew. The Economic Development Foundation saw strong volume from the manufacturing sector as the U.S. auto industry continued to rebound well, Bloem said.
The CDC also saw a rise in the number of entrepreneurs seeking 504 loans to start a business. Bloem estimates that up to 10 percent of the Economic Development Foundation’s business in FY 2012 was with business startups, mostly in the retail and professional services sector. That compares with “almost zero” in FY 2011.
Bloem credits that to the improved economy.
“We’re seeing some people being comfortable starting out on their own,” she said. “They are comfortable jumping in and starting a business again.”
Nationally, the SBA backed 53,848 loans in FY 2012 totaling $30.25 billion.