SBA-backed loans fall 21 percent

DRIVER’S SEAT: Utilizing an SBA loan for the first time, Hyundai of Newport owner Paul Mika purchased the building he had been renting for 20 years. / PBN PHOTO/KATE WHITNEY LUCEY
DRIVER’S SEAT: Utilizing an SBA loan for the first time, Hyundai of Newport owner Paul Mika purchased the building he had been renting for 20 years. / PBN PHOTO/KATE WHITNEY LUCEY

After 20 years of renting the building where he has his Middletown car dealership, Hyundai of Newport, Paul Mika finally bought the facility for $2 million with financing through a U.S. Small Business Administration loan originated by BankNewport.
“I tried to buy the building three times before and finally the owner gave in and sold it to me,” said Mika. “This was the first time I used an SBA loan. My mortgage is less than my lease payment.”
Even with his long-established dealership, Mika said the loan under the SBA’s 504 program, which provides small businesses with long-term, fixed-rate financing to acquire real estate and major fixed assets, gave him a clearer perspective on the future of his business.
“It makes me feel like I have control over my destiny,” said Mika, who finalized the loan in December 2011. Mika’s loan was through BankNewport, the Rhode Island bank that ranks first in the state for the fourth consecutive year in the number of loans through the SBA 504 program.
Overall SBA-guaranteed lending in Rhode Island for the fiscal year ended Sept. 30 was down nearly 22 percent from the previous year, though some local bankers see that as a potentially positive sign for the economy.
BankNewport originated 17 SBA 504 loans totaling $7.7 million in the fiscal year that ended Sept. 30. Under the 504 program, the bank is responsible for 50 percent of the financing, the SBA 40 percent through a certified development company and the borrower 10 percent.
BankNewport also approved $1.9 million for SBA’s 7(a) loans, the most common program that provides capital for businesses to use for general purposes.
In 2012, BankNewport originated $11.5 million in SBA loans out of $67 million in commercial lending, said bank Vice President Doug Hanson.
In 2013, BankNewport’s SBA lending totaled $9.6 million. The bank’s commercial lending is expected to total $90 million in 2013, said Hanson.
“Last year, our SBA lending was 17 percent of our commercial lending and in 2013 our SBA lending is 11 percent of our commercial lending,” said Hanson. “I think loan demand is there. I think loan growth is there.” Through its three programs, the 504, the 7(a) and microloans, the SBA guaranteed 317 loans through 41 financial institutions and certified development companies for fiscal 2013.
Thirty-six Rhode Island lenders made 265 of the 7(a) loans for a total of $51.7 million. Banks, credit unions and other private lenders made an additional $21.4 million in loans to businesses through the 504 program. That was in addition to $16.7 million certified development companies loaned from capital the SBA raised through debentures.
Overall, SBA-guaranteed lending totaled $68.6 million to Rhode Island businesses for fiscal 2013, a decline of 21.6 percent from the $87.5 million loaned to local companies through the federal agency’s program for the previous year. The state’s top lender for the fifth consecutive year was Bank Rhode Island, which make 61 SBA 7(a) loans totaling $9.1 million and two 504 loans totaling $1.2 million.
In the previous fiscal year, Bank Rhode Island made 82 SBA 7(a) loans totaling $16.5 million and one 504 loan totaling $875,000.
Bank Rhode Island President and CEO Mark Meiklejohn also views the decline in SBA-backed lending as a suggestion of a positive trend in the economy.
“The SBA credit enhances a guarantee that’s put on the loan, typically used by banks when there’s some weakness in the application,” said Meiklejohn.
“The last two years were very strong for Bank RI. We had about a 10 percent growth in 2012 in our loan portfolio,” said Meiklejohn. “We’ve had about a 10 percent growth year-to-date in our commercial-loan portfolio for 2013.
“So the fact that there are less SBA loans is just a function of the mix of deals we’re looking at,” he said.
Despite the decline in agency-supported lending, SBA Rhode Island District Director Mark Hayward said the loans are an important factor in economic development.
“In a tough economy, the SBA was successful in getting $90 million [in total lending] on the street,” said Hayward. •

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