SBA loans, economic bellwether, drop - Westfair Communications

Federal small-business lending in Connecticut is nearly 40 percent off last year”™s record-setting pace, signaling both confidence in a strong economy and qualms about new loan-approval processes following a federal consolidation.
Banks use loan guarantees from the U.S. Small Business Administration to extend credit they might not otherwise approve. Lower SBA lending activity is typically seen as a bellwether of a healthier economy, on the theory that banks are more apt to seek SBA guarantees if the cash reserves, collateral or credit history of borrowers are a concern.
Over the first seven months of SBA”™s fiscal year starting last October, Connecticut banks approved $112 million in SBA-backed loans. Over the remaining five months of the fiscal year, banks will have to lend more than $175 million to match last year”™s record-setting total.
At the start of the year, the SBA shifted loan processing from local districts to centers in Hazard, Ky., and Sacramento, Calif. Smaller banks are not yet comfortable with the new systems, said Bernard Sweeney, district director of the SBA”™s Connecticut office in Hartford, which he thinks is contributing to the decline in loan volume.
The SBA uses two programs primarily to guarantee loans. The 7(a) program is the most flexible, intended to provide financing for a range of purposes, from working capital, to real estate leases and purchases, to debt refinancing under certain conditions.
The 504 loan program provide larger amounts for expansions deemed to have an economic impact on a community, and typically comes coupled with a contribution of at least 10 percent equity from a borrower.
Between the 7(a) and 504 programs, the SBA backed 100,000 loans totaling $19 billion nationwide in fiscal 2006, up from 95,000 loans and $18 billion the year before.
In Connecticut, banks made more than 1,500 SBA loans for a sum $288 million, also a record.
Citizens Bank, which has long led SBA loan volume in Connecticut, is currently at risk of being supplanted by Bank of America Corp., the No. 2 SBA lender last year. Through April, Bank of America made 108 SBA-backed loans in Connecticut for $2.9 million; Citizens Bank, has made 70 loans to date for $3.2 million, well off the pace of last year”™s total of 349 loans for $19.8 million.
Ed Cull, vice president of Citizens”™ business lending group in Middletown, said the bank”™s goal is to be No. 1, calling the loans “a terrific source of pride” for Citizens and a valuable business marketing tool.
Cull said higher interest rates might also be contributing to the current trend toward lower SBA lending in Connecticut.
Newtown Savings Bank is running neck and neck with Webster Bank for the most loans extended by a Connecticut-based bank, with Newtown Bank having extended $3.6 million over 35 loans, and Webster Bank lending $2.9 million on 37 loans.

Robert Polito Jr., senior vice president of SBA lending at Waterbury-based Webster Bank, predicts that while activity will increase Connecticut SBA loans will be down this year.
“Lending picks up as the year goes along,” said Polito, who last month was named national small-business lender of the year for the SBA”™s mainstay 7(a) loan program. “We tend to see more deals in real estate after the first quarter and heading into the summer.”
The relatively lower lending in Connecticut comes as Congress weighs whether to increase the amount the SBA is authorized to guarantee to $25 billion. The new budget promises to reduce fees as well, which typically amount to about 1 percent of a loan according to Cull.