SBA Loan Program Seeing Results

A pilot loan program by the Small Business Administration is chalking up some modest success in New England, according to Mary Brennan Lukens, regional administrator for the agency.

The New England program, launched in the spring and slated to run for one year, has helped six businesses secure a total of $1.6 million in revolving lines of credit.

The agency estimates that demand for such credits in the region will total $16 million to $20 million, though more money is available if needed.

Guarantees of up to 75%

Under terms of the program, the SBA guarantees up to 75% of the credit lines, which are extended by conventional lenders. The loans, designed for businesses that cannot otherwise obtain financing, are intended to help cover the gap between the time manufactured goods are ordered and when the payment arrives.

The first credit approval went to Reed Scranton Designs of Waltham, Mass., which uses manufacturing facilities in Fall River, Mass., and in Rhode Island. The working capital financed production to fill more than $230,000 in orders. Shawmut Bank of Boston extended $135,000 in a one-year credit with an SBA guarantee of 75%.

The five other loans have been made to businesses in Massachusetts, New Hampshire, and Maine in recent weeks.

The processing is identical to most 7(a) SBA guaranteed loans, Ms. Lukens said. The revolving credit line requires more cashflow information from the company but no additional administrative effort from the bank. Lenders may combine revolving lines with term notes as long as the guaranteed portion does not exceed $750,000.

The New England market is still tight when it comes to small-business lending, Ms. Lukens indicated. "People are cautious about borrowing and lending. This program has taken some lenders who had been in the administrative mode and gotten them in active lending again."

The SBA is reviewing the program quarterly and making adjustments to ease access to the funds.

According to the survey, 76% of the entrepreneurs expect profits to grow over the next 12 months, an increase of eight percentage points from a similar survey last year. This year's average projection is for a 31% gain.

An Improved Outlook

Owners of entrepreneurial firms were considerably more optimistic about the economy than they were a year ago. More than half of the owners predicted that the next year would provide stronger economic opportunities. Last fall, only 20% predicted that the economic climate would be favorable to economic growth.

The expected growth in profits may fuel a hiring surge as companies expand. Of more than 75% owners who expected to see a change in hiring, 85% said they would increase staffing by an average of nearly 16% in the next year.

In terms of the much debated "credit crunch," the entrepreneurs said that the financial markets have a liquidity crisis and that few funds are available for businesses of their size. The problem is particularly acute for businesses with fewer than 100 employees or with less than $15 million in annual revenue.

The majority of entrepreneurs who plan to raise capital this year will tap the cash flow from current operations. Less than 40% believe that short- or long-term bank financing is a likely source of capital. They see private equity placements and venture capital as more likely sources.

Ms. Franzoni, a freelance banking reporter, is based in Springfield, Mo.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.