Despite an economy slowed by war, Rhode Island small businesses are borrowing a record number of Small Business Administration-backed loans in fiscal year 2003.
From Oct. 1, 2002 through Aug. 31 – the first 11 months of the federal fiscal year – SBA lenders provided 964 loans in the Ocean State, according to the SBA Rhode Island district office. That’s up from 803 loans during the same period a year earlier.
The figures are for the SBA’s 7 (a) loans, the administration’s flagship loan program, which guarantees loans made by banks and other lenders to small businesses.
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Dollar volume, however, is on par with last year, despite the larger number of loans, which reflects a smaller amount of funding per loan. About $73.9 million in SBA loans was granted during the first 11 months of the fiscal year, vs. $73.7 million in fiscal year 2002.
Mark S. Hayward, director of the SBA’s Rhode Island district office, said the office has been promoting smaller loans to a greater number of businesses.
“Those are the loans that provide small businesses with working capital,” Hayward said. “More working capital means businesses are looking to hire more employees.”
Hayward said that the local SBA office is on pace to break the record for 7(a) loan volume this year, which was set with 976 loans in 2001. The record value of loans is $108 million in 1999.
Small businesses are just beginning to respond to the glimmers of an economic recovery that have appeared in recent months, Hayward said. But he also attributed the brisk loan activity to the state’s strong network of SBA lenders.
“We have a number of lenders in Rhode Island that have really embraced the SBA guaranteed loan program, and that of course is critical to its success,” Hayward said. “But I also think there’s also room to increase SBA lending in the state.”
Don McQueen, executive vice president for credit and administration at Bank Rhode Island, agreed that the healthy competition among SBA lenders in the state has buoyed small-business lending here, despite the wobbly economy.
“I think the economy may have some effect on do-able deals,” McQueen said. “But there’s certainly adequate capacity in this district. It’s a pretty aggressive, competitive market.”
Jim Vesey, a senior vice president and chief credit officer at Washington Trust Co., said he isn’t sure why the value of loans is down.
“This state is made up of so many small businesses, I’m not surprised the loan volume is still strong,” Vesey said. “But the amount of dollars can be affected by a number of areas,” such as whether or not businesses need money for real-estate investments, which tend to be larger loans, he said.
One factor that might be putting pressure on the total dollar volume of SBA-backed loans is a cap that was put on loan amounts during the first six months of the fiscal year. The ceiling on loans was set at $500,000 during that time, instead of the usual $2 million, because it was uncertain how much federal money would be available to back SBA loans during this fiscal year. The cap was lifted in March.
But Hayward said the cap had virtually no effect on the amount of money that was loaned through the 7(a) program. He said an analysis of loan activity from fiscal 2002 shows that, had the cap been in place during the same period that year, only 12 loans were greater than $500,000 and would have been affected.
Mark S. Deion, a small-business consultant in Warwick, said that while the uptick in loan volume is encouraging, he said he would have expected loan values to be higher.
“In this economy, with interest rates as low as they are, one would assume that loans would be increasing, because this is a prime time to expand,” he said.
Deion, who is on the board of the National Small Business Association, said that most small businesses still are hunkering down in the uncertain economic environment. But they’re missing a prime opportunity, he said.
“While everyone else is standing still, you don’t have to shout very loud to get customers to know that you’re there,” he said. “This is the time to finance yourself and reinvest in your company, and that means taking on some risk.”
Nationally, SBA-backed loans were up nearly 36 percent over the first three quarters of fiscal 2003. The U.S. SBA reported sharper increases in loans to minorities, women and veterans.
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