The new head of the U.S. Small Business Administration’s Michigan office believes lending should continue to grow, even as volumes for the agency’s federally backed loans keep moving upward.
The SBA still needs to build greater awareness of its small business lending and erase lingering perceptions of a bureaucratic-laden program full of paperwork and forms to fill out, according to SBA District Director Constance Logan. That view leads some entrepreneurs to avoid or not even consider the SBA when they need credit, she said.
“We really need to dispel a lot of myths about who we are and what we do,” Logan told MiBiz. “We really need to do a better job of selling (small business owners) about going through the process. It’s much better than it was years ago in terms of bureaucracy. We really want to remove those barriers as much as we can.”
Logan took over as director of the SBA’s Detroit-based Michigan district office in January with the change in presidential administrations. She’s been with the SBA for 22 years and previously served five years as deputy director before succeeding former District Director Gerald Moore.
Maintaining contacts and further reaching out to chambers of commerce, economic developers and other business organizations around the state remains key to increasing awareness of the SBA’s services and the 7(a) and 504 lending programs, she said.
The Michigan district office ranks second in the nation to Los Angeles in the number of SBA-backed loans, Logan said.
Midway through the federal government’s 2017 fiscal year, 7(a) lending in Michigan increased to 1,206 loans for $357.2 million. That’s up from 1,157 loans for $324.5 million in the first half of the prior year. Districtwide, loans in the SBA’s 504 program increased to 93 for $68.6 million, up from 84 for $60.8 million midway through the 2016 fiscal year.
Huntington Bank dominates SBA lending in Michigan. Through March 31, Huntington Bank wrote 538 loans under the 7(a) program for $73.7 million, followed by Chemical Bank at 55 loans for $22.1 million and Comerica Bank with 55 loans for $21.9 million.
Logan credits lending growth to the state’s economy that has “people starting to feel better again about starting a small business and growing.”
“People are now more willing to take the risk,” she said. “We have a lot of people seeking capital and wanting to use our programs. The numbers are trending very well.”
In the 2016 fiscal year that ended Sept. 30, the SBA backed 2,446 7(a) loans statewide with a collective value of $684.1 million. That’s slightly fewer than the 2,485 loans in the 2015 fiscal year, but a higher dollar value by about $20 million.
Loans written under the 504 lending program grew to 185 for $117.6 million last year, up from 165 for $87 million in the 2015 fiscal year.
Under the SBA’s 7(a) program, small businesses can borrow up to $5 million to use for long-term or short-term working capital; establish a new business; refinance existing debt; or to buy real estate, equipment, machinery, furniture and fixtures. The SBA guarantees up to 85 percent of loans up to $150,000 and 75 percent for loans of more than $150,000, mitigating the risk to the lending bank.
Loans made under the SBA’s 504 program can go to purchase land and existing buildings, build new facilities, and buy machinery and equipment. Loans in the 504 program are for small businesses with a tangible net worth of less than $15 million and average net income of less than $5 million in the two prior years.
Long-term, fixed-rate 504 loans are processed through certified development companies such as the Economic Development Foundation in Grand Rapids, Holland-based Lakeshore 504 and the Michigan Certified Development Corp. (MCDC) in Lansing.
MCDC President Mike Williams attributed the increase in 504 lending to action Congress took last June to reauthorize the program to refinance existing debt, and to pent-up demand for capital purchases.
During the recovery from the recession, many small business owners opted to max out their existing capacity rather than borrow to expand or buy new equipment, Williams said. That’s now changing.
“People did put off decisions on making fixed-asset purchases,” Williams said.
SBA-backed 504 loans require the borrower to make a downpayment of at least 10 percent. A bank or other lender provides 50 percent and a local CDC contributes 40 percent.
In addition to driving greater awareness of the SBA’s lending programs and entrepreneurial support services, District Director Logan wants to put more emphasis on cybersecurity. She said she’s also considering convening groups to examine how the emergence of autonomous vehicles will affect small businesses.