New SBA loan bails out businesses in debt

Long Island Business News, Jun 19, 2009 by Laura Glasser

A new loan from the Small Business Administration could help many area businesses saddled with debt survive the recession. Unfortunately, finding a bank that offers the program could be a challenge.

The SBA's new America's Recovery Capital program launched Monday targets small businesses that are struggling - the very customers banks have been shunning since the credit crisis began. However, only one bank with local operations, Wells Fargo, has committed to the program so far.

"These are borrowers who already have non-performing loans, so the risk factor is much higher," said Roslyn Goldmacher, chief executive of the Long Island Business Development Center.

In order to qualify for the up to $35,000 loan, businesses have to show three years of income statements to demonstrate a drop in profitability caused by the recent economic downturn. If they qualify, the terms are unbeatable. The loan's interest free to the borrower - the SBA pays interest to the bank - with no payments due for the first 12 months.

"In theory it's a useful program, particularly for small businesses that are having problems making payments on existing conventional loans and need a little breathing room until the economy turns," Goldmacher said.

But banks aren't biting, Goldmacher said. Other than Wells Fargo, only JPMorgan Chase and HSBC have hinted that they might participate.

One local community player, Suffolk County National Bank, said it's also considering the ARC loan.

"We're seeing how it will affect us and our customers," said Bob Dick, chief lending officer at the bank. "Certainly, it's part of the recovery act, and we're taking that very seriously."

Banks can give the new loan to any struggling small business, but Dick said his bank would only offer the ARC program to businesses that already have a loan with Suffolk County National.

Local small business owner Elaine De Luca Byrnes, who has unsuccessfully contacted several local banks looking for an ARC loan, said she's frustrated with the unwillingness of institutions to help companies like hers.

Like many small businesses owners, De Luca Byrnes, owner of marketing firm Luce Creative in Port Jefferson, has lost access to her line of credit, but still has to pay it down. The interest is so high that her payments aren't even making a dent in the principal. With an ARC loan, she could pay off the credit line and use the monthly payment money to help her business, she said.

"I really believe the banks are overreacting," she said.

State Bank of Long Island in New Hyde Park and Empire National Bank in Islandia both told LIBN they will not be participating in the ARC program, but would not comment further. Other local banks did not return requests for comment.

In addition to the risk of ARC loan borrowers, banks also will also take a profit cut on the new SBA loans.

Dick said the loans carry a prime plus 2 percent rate, paid for by the SBA, which comes out to about 5.25 percent. On a normal commercial loan, he'd collect between 7 percent and 8 percent, he added.

"But if your loan is going to go bad at 8.5 percent, and you're not going to collect anything, it's better to get less interest and keep the loan current," he said.