A boost from federal stimulus money improved the lending climate here for small businesses last year, and a proposed near doubling of the U.S. Small Business Administration budget for this fiscal year likely will spur SBA lending further, says Ted Schinzel, the branch manager of SBA's Spokane District.

SBA is expecting a budget injection that will restore its funding to a little more than it was when President George W. Bush took office, Schinzel says.

He says over the course of Bush's two terms in office, the SBA's budget was cut to $550 million from $900 million, and that the agency's proposed budget for 2011 is $994 million.

"We're not eating beans out of a can now," he says.

The good news for businesses is that most of that new money will go directly into loan programs, since the agency became leaner when its budget was reduced year after year.

Schinzel says that now, rather than each field office processing loans, there are two SBA loan processing centers, in Sacramento, Calif., and Hazard, Ken., where all SBA loans are processed. The people who work in the field office now have altered roles, including more administrative, community outreach, and marketing responsibilities, and Schinzel doesn't foresee any additions being made to staffing levels at the SBA field office here as a result of the additional funding.

"You've had to adjust to the climate through the years. The way to do that was to go to processing centers," he says. "Once you go to a different model, you don't go back."

Both small-business and conventional lending were frozen about this time last year, Schinzel says. Once the stimulus bill was enacted, allocating $375 million to the SBA to enable the agency to waive fees charged to businesses under its two main loan programs, loan volume rose, he says.

In addition to waiving the 3 percent guarantee fee for borrowers, making it less expensive for small businesses to borrow money, the federal government raised its guarantee on small-business loans under its 7(a) program up to 90 percent of the loan amount, from a range of 75 percent to 85 percent, reducing the risk for lenders.

SBA 7(a) and 504 loans can be used to buy or improve land or buildings or to acquire equipment with an expected long life. The 7(a) loans also can be used for such things as startup or working capital.

The guarantee increase was extended through the end of February and currently is being considered for renewal for the remainder of this calendar year, says Gilbert Acevedo, president of Spokane-based Northwest Business Development Association, an SBA-approved certified development corporation. Such organizations are authorized to help arrange 504 loans and to provide 40 percent of the financing for them, although such loans must further job creation, economic development, or public policy goals.

"If you look at our company we were down substantially and our business did pick up" with the stimulus funding, he says.

By around March of last year, almost halfway through the SBA's fiscal year, SBA nationwide had processed only about 10,000 loans, but in the months following the stimulus, that number climbed, reaching 55,000 for the fiscal year ended Sept. 30, 2009. That was only about half as many as the more than 100,000 loans processed the prior year, but still a vast improvement over the first two quarters, Schinzel says.

The Spokane district fared somewhat better than the nation and the Seattle district, with its numbers down for fiscal 2009 by only about 12 percent, compared with a decline of about 50 percent nationwide, he says.

The Spokane District processed 527 loans in fiscal 2009, compared with 651 loans in the previous year. The district's loan volume peaked in 2007, when it processed 701 loans, he says.

Schinzel says several factors contributed to better volumes here than nationwide. He says since a lot of local lenders were more conservative to begin with, they haven't had to curb lending as much as their counterparts in other places. Additionally, he says, property values haven't dropped in Spokane as much as elsewhere, so lenders that primarily invest locally haven't had to deal with declining property values as much as lenders in other markets.

Credit unions also are doing more lending, picking up some of the slack that was left in the market and spurring their banking competitors to lend more also, Schinzel says.

"I would say because some of the community lenders are still pretty aggressive, some of the others still want to stay in the game," Schinzel says.

Possible stimulus extension

The 7(a) program expansion that gave lenders a 90 percent guarantee might be continued through this calendar year, Schinzel says.

Right now, things are in limbo while everyone figures out whether the bill that would extend the higher guarantee will pass, Schinzel and Acevedo say.

Acevedo says he's confident that the bill will pass, but it's hard to complete paperwork on loans until that's a certainty.

"Everyone is trying to get things done, but until it's formal we're in a wait-and-see mood," he says. Acevedo says banks continue to be reluctant to lend money and that a separate protection under the 504 program often helps give them greater confidence to make loans.

"Most still are withholding funding a lot. SBA can make that loan attractive," he says.

In addition to the 7(a) extension, a new program is under consideration that would help businesses refinance commercial real estate loans through a certified development company, such as NWBDA, and obtain a loan with a 90 percent federal guarantee.

Schinzel says the program would help banks shed some loans made three or four years ago that might be at risk of default because of large pending balloon payments. Schinzel says if the legislation is passed, that program likely would continue through 2011.

For borrowers, the lending climate should continue to improve, but the playing field has shifted some, Schinzel says. He says that these days credit scores have to be a little higher, businesses might have to put up a little more collateral for projects, and loans might be a little smaller, and those conditions could prevail for some time yet.

So far this year, Acevedo says it's slow as bankers wait to see a business's year-end numbers before approving loans.

Currently, because of continued caution in the industry, the average 504 loan made through NWBDA is between $200,000 and $300,000 less than last year, indicating that the average project is smaller, Acevedo says. He says that it's too early to say how that might change as the year progresses.

Now, in addition to seeking loans, a lot of businesses are taking advantage of the SBA's small-business workshops and counseling services, Schinzel says.

"There's opportunity once you get to the other side of the downturn," he says. Schinzel says timing is critical, and the SBA aims to help entrepreneurs plan well.

Acevedo says that though it will take some time for lending here to reach previous levels, he believes that because there's a job creation requirement attached to the 504 loan program, its recipients will continue to drive the economic recovery. He says the mild winter weather here also could encourage people to begin construction projects early, providing a boost to contractors.

"Now, you're seeing the banks' balance sheets are improving, so they are starting to make some working capital loans," Acevedo says.

He says businesses that have maintained a good cash position now have the opportunity to reap the benefits of reduced real estate prices and low interest rates on loans, as well as of a large labor pool.

"If you have cash and the guts, it's a good time to expand," Acevedo says.