L.A. Times, January 31, 2011
A small-business owner could get up to $250,000 in capital under new loan initiatives being rolled out by the federal government.
The new Community Advantage loan program to be launched this spring is geared to underserved markets, including firms less than 2 years old, small businesses in low- to moderate-income communities and those owned by veterans.
The loans will be made directly to small-business borrowers by nonprofit lenders including the Valley Economic Development Center in Van Nuys. Such groups previously were not allowed to make loans guaranteed by the federal Small Business Administration.
“It’s going to be a game changer for many of us who are trying to do lending to minority populations” said Roberto Barragan, president of the valley center, which provides business training and financing through seven offices. Loans under the new program will probably be available starting in June, he said.
Previously, the center and similar groups had to get banks to approve and issue loans to their clients, and those approvals became harder to get as banks tightened credit.
Also this spring, the SBA will launch the Small Loan Advantage program. It will allow loans of up to $250,000 too, but by larger, existing SBA lenders, especially banks. There are fewer restrictions under that program on who the loans can go to compared with Community Advantage.
The SBA, which has had a hard time getting banks to make relatively small loans, hopes to attract more lenders by guaranteeing as much as 85% of the loan amount under both programs. By comparison, the existing SBA Express loan program guarantees 50%.
Banks may not find them particularly profitable, but small loans are just what new businesses and small firms need.
The SBA unveiled the Community Express loan program as a pilot in 1999 to address that need. But most SBA-approved lenders did not participate in the program, which had a high default rate and came to be dominated by a few lenders, including two in California.
One of those California lenders, Innovative Bank of Oakland, was closed by regulators in April and had its assets taken over by Los Angeles-based Center Bank, which has no intention of continuing in the Community Express loan program, said Angie Yang, senior vice president at the bank’s holding company, Center Financial Corp.
That has left a number of California small-business development groups without a loan product for their clients that are not quite bankable. The Community Advantage loans are meant to help fill the gap.
Bigger loans might be available to small businesses under the new program because direct lenders, including CDC Small Business Finance of San Diego, probably will be able to lend more to a company than when banks call the shots.
“We are more of a cash-flow lender ourselves, so we will look at a small business that maybe doesn’t have an excess of collateral,” said Robert Villarreal, senior vice president of CDC. “We feel very comfortable with our underwriting.”
The new loan policies could be good news for small-business owners such as Jose Calero, co-owner of LapWorks Inc., a home-based business in Rancho Cucamonga. He wanted a $114,000 Community Express loan from CDC last summer to take advantage of an opportunity to expand his online laptop accessories into retail stores. But CDC was able to give him only $50,000, the maximum allowed by its partner bank, and he couldn’t get a traditional bank loan.
“If we are denied the resources and funding to help our businesses grow, then we are shooting ourselves in the foot,” said Calero, who had to pass on expanding into retail stores. “It is us, the small office, the home office, that are making a big impact today” on the economy.
// // Copyright © 2011, Los Angeles Times
Compassion with Sizzle 