Small business is the backbone of the economy and is driving the recovery through jobs creation and expansion.
The government is taking notice. There is recognition both at the federal and state levels of the importance of supporting small business.
Recent changes to the Small Business Administration”™s lending programs bode well for the private sector. The government has increased the size of certain loans and has changed its definition of a “small business,” expanding eligibility.
It also recently relaxed refinancing standards for SBA 504 loans, allowing small-business owners to refinance commercial real estate debt.
How can your business cash in? The Business Journal checked in with Robert F. Polito Jr., senior vice president and director of Government Guaranteed Lending at Webster Bank, which has branches in Westchester and throughout Connecticut.
Polito, who bills himself “a one-trick pony” in relation to SBA lending, is in his 17th year at Webster.
In an online interview ”“ and on the eve of a threatened shutdown of the federal government ”“ Polito explained the SBA”™s new rules. Following are edited excerpts.
Caryn McBride:
I want to hear all about the SBA, but the news of the day is the threat of a government shutdown. How would that affect SBA loans?
Bob Polito:
“For those of us who remember what happened in 1995 in the Clinton Administration, we weren”™t allowed to process loans.
We would do everything to support (customers) in the interim ”¦ so that it doesn”™t have to go through the actual mechanics of a refinance, which adds a whole different level of due-diligence to the (loan) package.
“If anybody needed money, let”™s say in an emergency, to make payroll, that sort of thing, we would do our best to make that happen with the understanding that the guarantee would be forthcoming.”
The government would have to be shut down for a fairly long period to really have an impact though.
“Very true. As I told my folks today, all of the loan commitments that we have in-house now, the guarantees are obtained. So there would be about a 30-day lag period when that would start to really impact. I don”™t suspect, if history serves, that a federal shutdown would last very long. It”™s political suicide for that to happen ”“ both sides of the house.”
Moving on then. Talk about the changes to SBA loans and the timing.
“In September 2010, the SBA came out with some radical changes. Two huge ones were to increase the loan sizes. Historically, the SBA 7a loan program was capped at $2 million and (that”™s) a lot of money, but it”™s been $2 million for a very long time ”¦ we needed to get more money out to the business community. They effectively brought it to $5 million, which is garnering attention in the small- to mid-market segment, which is fantastic.
“They also increased the size of the 504 loan program, bringing it from $1.5 million to about $5.5 million for a manufacturer, pretty much $5 million for everyone else. That has a multiplier effect because the bank is also putting out capital in front of that debenture so you could effectively do a $10 (million) to $20 million piece with a $5 million equity portion to that. It gives a bank a lot of comfort, all things being equal, that that debt structure is there.”
They”™ve changed the definition of a small business?
“For years, you were either a retailer or a wholesaler or a manufacturer ”“ we had to fit you into one of those buckets.
“As a retailer, depending on the code, you could have essentially $70 million in sales and still be considered small. Other stores, grocery stores, were about $20 (million) to $22 million, so you had to go and reference if you were still eligible. A wholesaler could have up to 100 employees and a manufacturer could have up to 500. We”™d run into situations where we couldn”™t lend because the details exceeded eligibility.
“Now it”™s based on a net-worth calculation. You can have a net worth of not greater than $15 million and your net profit after taxes could not have been (greater than) $5 million for the past two years.”
What do you expect in terms of increased volume?
“We already see volume increase in units, actual numbers of loans, and dollars. I think it bodes well for businesses that might need that extra little guarantee to get it over the hump for a loan approval.”
You”™ve been at this for 22 years. Why the SBA focus?
“If you”™re older than me ”“ I happen to be 47 ”“ if you”™re four or five years older and you”™re a banker, you would want nothing to do with the SBA because of the paperwork requirements. If you don”™t know the SOP (standard operating procedures) and you”™re lending in this environment, you”™re not going to be successful.
“I took the SBA on 22 years ago because no one else wanted to do it. I saw a niche ”¦ a cool idea. So I jumped into it and haven”™t looked back. It”™s really like the old ad: ”˜This isn”™t your dad”™s Buick.”™ It”™s all done over the web. Anything you do with the SBA can be done on the web.”
So you”™re Webster”™s friend to small business?
“I like to think that. And I can be a bit of an activist.”
We”™re hearing from businesses, particularly smaller ones, the money is not there. You say it is?
“It”™s a complicated question. First of all, we have to lend money to businesses that are eligible ”¦ Obviously with the recession we”™ve seen significant revenue (and) asset decreases.
“As people retrench to build up their revenue the banker”™s challenge is to say to him- or herself, ”˜Can that company get back to where they were? Should we take that risk? Can we take that risk? The smart bankers will figure that out.
“However, an SBA guarantee in and of itself is never going to make a good loan out of a bad loan.”
My question is that when the SBA relaxed some of their criteria in 2009 during the whole stimulus thing – did any businesses actually benefit from it or did the banks and lenders never get those application past their approvals?