By Jonathan D. Epstein
The federal government is on a mission to restart bank lending, but it's not just for large corporations and consumers.
In the last two months, the Obama administration, Congress, the Federal Reserve and the Small Business Administration have unveiled a series of related steps and programs geared to help the nation's small firms.
"We're in business. We have the authority to guarantee these loans," Franklin Sciortino, director of the Small Business Administration's Buffalo District, said. "Bring 'em on."
The biggest initiatives include $730 million in special funding and programs allocated to the SBA by Congress, and $200 billion in 3- year loans from the Federal Reserve to help investors buy securities backed by SBA, auto, student and credit card loans. The second is designed to thaw capital markets.
The Obama administration last week launched its "Unlocking Credit for Small Businesses" initiative, which eliminates costly SBA fees for borrowers and increases the SBA loan guarantee to 90 percent. It also calls for the Treasury Department to buy up to $15 billion in investment securities backed by SBA loans, as a means of rebooting the secondary market.
The temporary changes are designed to make it less expensive for businesses to borrow using SBA loans, while providing more comfort to lenders.
Previously, the fee on a $2 million loan, with the maximum 75 percent guarantee, was $53,750, which was deducted from the loan proceeds. Now the businesses will keep that money.
"I feel like a car salesman," Sciortino said. "We're having a loan sale."
The changes will last until the $375 million provided for them in the stimulus bill runs out, expected by year-end. In the meantime, the agency is actively spreading the word. Sciortino said he gave seven presentations in the last five days to increase awareness locally.
The renewed focus on small businesses stems from the view that they are the engine behind the economy. The nation's 23.7 million small businesses employ nearly half of all private sector workers and account for 70 percent of the net new jobs created in the last decade.
But poor economic conditions have hammered small firms, draining sales and confidence and prompting them to rein in expansion plans as they struggle to stay afloat.
"There's really a recognition that, if we're going to get out of the current recession, small business is going to lead the way," said Bill Rys, tax counsel for National Federation of Independent Business. "The business climate has to improve. That's the most basic thing."
Local banks applauded the programs.
"It will be a positive thing to help alleviate the caution and concern that's in the market," said Alfred F. Luhr III, senior vice president and group manager for business banking in Western New York for M&T Bank Corp., the longtime No. 1 SBA lender in the region.
But the bankers said the new initiatives wouldn't change how they operate, since they say haven't cut back on lending and haven't changed their underwriting standards the way large, out-of-state banks have.
"Certainly some of the SBA's activities and actions are starting to spur businesses to come to banks looking for credit," said Steve Brennan, first vice president of the business banking group and SBA manager at First Niagara Financial Group. But "we've always been a pretty active SBA lender. We haven't been in and out of the market."
"The changes won't affect us as a bank. We've always practiced the same underwriting principles," said Matt Murtha, spokesman for Financial Institutions and Five Star Bank.
e-mail: jepstein@buffnews.com
Originally published by NEWS BUSINESS REPORTER.
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