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By Nathan Peck | MiBiz WEST MICHIGAN

SBA loans, small business lending rise on improving economic news  Today’s level of small business loan activity over a year ago is another tentative sign that business owners’ confidence in the recovery is growing.

For the first six months of its fiscal year, Small Business Administration 7(a) loans are up 84 percent over a year ago to $234 million, up $76.5 million over the same period in 2009. Lenders are freeing up capital, albeit cautiously, and using continued government subsidies to help offset risk, said Allen Cook, assistant district director for lender relations at the SBA’s office in Detroit.

“We are seeing all different forms of financing here — from an increase in startups, businesses still in the process of overcoming some problems that they have, to businesses needing growth capital. It is all across the board and across all industries,” Cook said. “This is a sign of lenders’ willingness to providing more lending. They are looking to increase their commercial loan activity and looking harder at using SBA loans because of the (uncertain) financial times.”

The increased lending activity adds positive momentum to what is a somewhat mixed economic picture in terms of consumer activity. Economic indicators of consumers’ confidence in the recovery were split in April: the University of Michigan’s index of consumer confidence fell from March, while the Consumer Board’s index showed an increase.
Adding further murkiness to the picture, the U.S. Commerce Department released statistics showing that consumer spending rose in the first quarter of 2010 by the largest amount in three years.

As lenders have gotten more cautious about commercial lending, borrowers are finding it difficult at times to find banks willing to lend. Cook said that banks have historically differed relatively little in their commercial lending practices. Not so today. As banks work to lessen their risk, some are not looking at any business less than two years old while others are talking to any eligible candidates who meet their coverage, credit and collateral requirements.

“Those that are lending to startups are still looking at startups very hard, but willing to look,” Cook said. “It is hard to decipher where the lender is — it takes some perseverance on the part of borrowers.”

The Michigan Certified Development Corp., a nonprofit corporation, has seen 504 activity pick up over the last six months as businesses look to take advantage of drops in real estate prices. The size of loans has decreased slightly, dropping to an average of $1.1 million in 2010 from $1.3 million a year ago. The MCDC completed 56 transactions in 2009, and has more than doubled that in the last six months, having completed 126 transactions through April, Kelly Hutchings, senior loan officer, told MiBiz.

“We’ve seen a significant increase in activity. The value of transactions have come down some because businesses are looking to preserve more of their working capital,” Hutchings said. “We are seeing businesses that are taking advantage of the real estate market and are buying a building rather than leasing. There is not a lot of interest in purchasing equipment at this point.”

Huntington Bank is using SBA loans to garner market share in the small business market. The Columbus, Ohio-based bank was the fifth most active lender for SBA 504 loans, completing loans in Michigan totaling $105 million over the last six months. That’s part of its larger strategy in pledging $4 billion for small business loans in the Midwest. Participating in SBA lending gives Huntington the ability to provide business loans at the margins of the traditional underwriting standards, said Craig Street, national director of SBA lending for Huntington.

“SBA extends your ability to take a little more risk and expand outside your traditional credit box. The role that the SBA plays is that it allows us to say yes to more customers more often,” Street said. “This is a long-term strategy, a skill set and intellectual capacity that Huntington continues to grow.”

Huntington now directs its staff to send customers who do not meet current underwriting standards to the SBA program. As small businesses work to recover from the recession, Street said Huntington is looking to more “granular” underwriting standards — that is, looking at financial performance quarter-to-quarter, rather than annually.

“We have really tried to stratify our filter to make sure that we don’t overlook any opportunity,” Street said. “The beauty of the program is many of these customers are going to matriculate beyond the SBA into traditional loans. Through the SBA program we have demonstrated how we’ve been committed to small business lending. These are tangible ways we are working to find ways to get dollars out the door.
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