U.S. Small Business Administration-backed lending has started strong in 2017, and demand for the guaranteed loans looks to remain steady, some top SBA lenders here say.

Ted Schinzel, SBA’s Spokane branch manager, says, however, that although 2017 has started strong, SBA lending can dip in an improving economy as other sources of capital emerge.

“I sense the economy is doing pretty good,” he says, adding that 2016 SBA lending seemed to peak last summer, while overall lending was on the rise.

In the SBA’s 2017 fiscal first quarter, which ended Dec. 31, the total dollar value of SBA-guaranteed loans issued in the Spokane branch of SBA’s Seattle District was the highest among first quarters in at least four years, although the total number of loans SBA Spokane branch recorded fell for the second straight year.

The dollar volume for the quarter was $61.38 million on 110 loans, up 52.7 percent compared with $40.19 million on 125 loans in the year-earlier quarter.

In fiscal 2016, which ended Sept. 30, lenders in the Spokane branch issued 515 loans totaling $171.2 million, compared with 2015 totals of 522 loans totaling $183 million.

While the dollar volume of SBA loans dipped 5.2 percent in the 2016 fiscal year compared with 2015 loan volume, the total number of loans in 2016 was the second highest in the last five years.

The Spokane branch territory includes 20 Eastern Washington counties and 10 northern Idaho counties.

SBA backs two types of loans, both of which have a $5 million limit.

One loan type, known as a 7(a) loan, is often used to start a new business or to expand an existing business. 

The other loan type, known as a 504 loan, is used primarily to buy buildings, large fixed assets, and major equipment. The 504 loan which usually has terms of five to 10 years, also is tied to job creation.

SBA guarantees 85 percent of 7(a) loan amounts up to $150,000, and 75 percent of loans greater than $150,000.

For most 504 loans the borrower puts up a 10 percent down payment, a conventional lender provides 50 percent of the loan as a first mortgage, and a certified development corporation that arranges the loan package puts up a government-guaranteed 40 percent as a second mortgage. Funds for the guaranteed portion of 504 loans are raised through a monthly bond auction.

Coeur d’Alene-based Mountain West Bank was the top SBA lender in the Spokane branch of the Seattle District measured by dollar volume in 2016.

Mountain West issued 81 SBA 7(a) loans valued $25.5 million. The bank’s SBA loan dollar volume was up from $23.9 million in 2015. The number of SBA loans issued by the bank, however, fell in 2016 to 81 loans, compared with 101 loans a year earlier.

Thomas Pool, Mountain West Bank senior vice president and SBA department manager, says 2017 is looking to be a strong year.

“Nationally, the SBA is a little ahead of where it was this time last year,” Pool says.

He says he’s seen a recent growth in smaller SBA loans, which he attributes to a combination of fee waivers and strong demand from smaller businesses that don’t need more than $150,000. 

As in recent years, upfront service fees for SBA 7(a) loans up to $150,000 are waived for fiscal 2017, which runs through Sept. 30.

“SBA is always looking to serve more loans to underserved markets, including veterans, women, and minorities,” he says. “Smaller businesses seem to get started with smaller dollars.”

In the most recent trend, more SBA borrowers have been looking to fund equipment purchases rather than real estate purchases, Pool says. “People want to reinvest in plants and equipment.”

In 2015, though, more borrowers were buying commercial real estate, he says.

“You never know from one year to the next whether folks are going to be looking for equipment or real estate,” he says. “The mix changes annually, and a whole host of factors fit into that. Other SBA lenders might have a totally different mix.”

For term loans greater than $150,000 and up to $700,000, the fee is 3 percent of the guaranteed portion. For loans greater than $700,000 and up to $5 million, the guarantee fee ranges from 3.5 percent to 3.75 percent of the guaranteed portion of the loan.

The annual service fee for 7(a) term loans is 0.55 percent of the guaranteed portion of the outstanding balance.

For veteran-owned businesses, the up-front service fees for 7(a) term loans greater than $150,000 and up to $500,000 are discounted 50 percent.

SBA up-front fees for all SBA 504 loans are waived for fiscal 2017.

The annual service fee is 0.7 percent of the balance of new loans, or 0.73 percent of the balance of refinanced loans.

Schinzel says the fees, which offset defaults on guaranteed loans, enable SBA loan programs to remain self-funded.

Only nonprofit certified development corporations, such as Spokane-based Northwest Business Development Association and Seattle-based Evergreen Business Capital, are authorized to arrange 504 loans.

The SBA Spokane branch ranked Northwest Business Development Association as the second top lender in 2016.

The nonprofit arranged 24 loans valued at $19.6 million. 

Spokane Valley-based Numerica Credit Union has increased its SBA lending to become the sixth largest SBA lender in 2016, up from the 15th largest lender in terms of dollar volume in 2015. 

The credit union issued 18 loans with a total value of $9.8 million in 2016, up from six loans with a total value of $3.1 million in 2015.

Numerica’s 2016 SBA loan volume also was the highest among credit unions in SBA’s Spokane branch.

Josh Melcher, Numerica’s vice president of private and business banking, says the credit union’s growth in SBA lending is part of a planned initiative to offer SBA 7(a) loans and SBA lines of credit to local businesses.

Melcher says government backed, competitively priced SBA loans help drive growth and job creation.

“SBA 7(a) loans can help with startup costs, equipment, inventory, or working capital needs,” he says, adding, “SBA lending helps Numerica fulfill our core purpose to enhance lives and build communities.”