The Lending Tree
Uptick in business loans drives an economic revival across Michigan
(page 3 of 5)
While 2010’s results are promising, they lagthe 3,314 loans totaling $496.1 million that the SBA guaranteed in Michigan in 2007. However, some experts say it’s unclear whether the increased loan activity will translate into net growth. Another concern is whether the temporary provisions, sweet as they were, will have had the same effect on economic activity as the Cash for Clunkers vehicle scrappage program had in 2009. A 2010 study by the University of California, Berkeley and the University of Chicago concluded that Cash for Clunkers simply pulled vehicle purchases forward from the near future.
Bankers say the SBA has the right tools at the right time to juice Michigan’s economy. “[They] allow a bank to lend more than it might be able to do otherwise on the same kind of collateral,” says Greg Wernette, executive vice president and chief lending officer for Level One Bank in Farmington Hills, a community bank that made nearly $3 million in SBA 7(a) loans last year. “The 504 program allows you to advance up to 90 percent of the appraised values, whereas most banks are going to advance only 70 percent to 80 percent,” he says.
Small business loan payments are typically based on a 15- to 20-year mortgage amortization, and the loan renews every five years. SBA loans offer 10-year terms and up to 25 years amortization, which can lower payments and increase a company’s cash flow.
Some bankers say the decline in business loans during the 2008 economic recession was mainly a function of demand — that businesses that survived into 2009 were too busy trying to stay alive to think about borrowing money. One lending officer says loan applications “fell off the map.”
But the supply-side played a role, as well. While bankers may not have necessarily tightened lending standards, devalued real estate and other market mechanisms conspired to limit how much money they could offer. To the extent that small businesses were gaining steam, many entrepreneurs decided that drawing from the SBA’s well could be a smart and assessable alternative.
Alex Burkulas chose Level One Bank in Farmington Hills for an SBA loan in 2010. The president and CEO of Cygnus Systems Inc., an IT services and support company in Taylor with 25 employees, says revenue in the first quarter rose 30 percent from the same period in 2010. He forecasts an increase of 20 percent to 25 percent in the next year.