Community banks in western Washington. despite gains by big banks, still snap Lip more than half of all Small Business Administration guarantees issued by the agency's Seattle office.

In fiscal 1993, that office guaranteed $129 million in small-business loans -- with $69 million of the guarantees issued through small banks.

It was the third straight year that the administration's Western Washington region has surpassed its previous lending peak -- this time by 11%. Robert P. Meredith, who runs the office, says his guarantee total this year ranked eighth among the tallies for SBA's 64 offices.

This is no mean feat in a region whose dominant employer, Boeing, has been slumping. But the numbers out of western Washington, where small-business demand remains strong, show that the SBA and "main street" banks are a godsend for employers and employees.

"In the fiscal year just ended, we helped maintain or create 9,300 jobs in western Washington," says Mr. Meredith. "Thanks to our banking partners, we're really making a difference.

"We're fortunate to have a businessman, Erskine Bowles, at the top of our agency," Mr. Meredith adds. "We see ourselves as a small business that's trying to join the modem world, and our officials know we need help to do that, so the agency is transferring regional staff to the district offices.

Spurring Loans

Mr. Meredith is assigning additional staffers to an information office established in 1991. The office, which features an electronic library and business advisers, is serving as a template for similar intiatives elsewhere in the nation.

It also has spurred much of the SBA business enjoyed by bankers west of the Cascades, Mr. Meredith says.

"We've had 5,000 people pass through that office. We're particularly encouraged by the interest in electronic lending applications, which we're offering in that office as a pilot project."

Conrad Hanson, CEO of City Bank, Lynwood, terms his relationship with Mr. Meredith's office as "excellent."

In fact, he's "recommending SBA lending to a lot of other community bankers. It's an invaluable system to help small banks grow. It enables you to pick up assets well beyond your lending limit, and lend for longer terms."

City Bank, which holds $279 million of assets, was Western Washington's leading SBA lender in fiscal year 1993. Its dollar volume, $23.7 million, edged out small-business lending at the Money Store and surpassed the tallies for far larger banks.

Mr. Hanson, whose advertising budget is small, says referral business helps keeps City ahead of the majors in SBA lending.

Moreover, "many of these businesses grow very strongly and, down the road, they become some of our most valued customers."

|Big Banks Don't Do the Job'

John Horning, executive director of the Washington Independent Bankers Association, says "big banks don't do the job. First Interstate, Bank of America, and the other big players aren't interest in small-business loans."

Nevertheless, Seafirst, now a Bank of America subsidiary, First Interstate and US Bank "are starting to do a lot more SBA lending," says Walter H. McLaughlin, assistant vice president of First Heritage Bank, Snohomish. "In the '80s they weren't even in the game."

Mr. McLaughlin says big banks have increased SBA lending as part of their Community Reinvestment Act initiatives. "When we get a loan request, we try to see it as an as an SBA loan up front," says Mr. McLaughlin, whose bank has an "outstanding" CRA grade. "Big banks see small-business lending requests as portfolio notes, first, and as SBA notes, second. They do them as SBA loans mainly for CRA credits."

Unlike big banks, small banks generally sell their SBA loans, Mr. McLaughlin says. "Big banks almost uniformly hold their loans," Mr. McLaughlin says. "We sell them because they're a nice source of premium income, and the yields are still healthy -- though they fell when the SBA decided to take a piece of the premiums."

The SBA ran out of money last spring and though the agency is back on its feet, it will have 19% less money to support $8 billion in lending guarantees.

To stretch its dollars, it has slashed its loan loss provisions by 50%, and joined the secondary market by taking half of all sales premiums exceeding 110% of a guaranteed note.

"It's altered the income structure of the bank," says Mr. McLaughlin. "Before, we'd sell the loans for maximum premium -- which was as high as 118% or 119% of the note. Now, we'll sell up to 110%, and we'll keep the rest for servicing fees."

City Bank, which has just been recommended for an "outstanding" rating under the Community Redevelopment Act, has pursued small-business lending since it was started in 1974. It will keep trying to sell all of the guaranteed portions of its SBA loans to maintain maximum liquidity, Mr. Hanson says,

City, which is returning 2.16% on assets, and which has a loan-to-deposit ratio of 80%, hopes to match its record SBA year in 1994. Although Boeing probably will lay off more workers, "small businesses have filled the gap that the aerospace slump has left behind," says Mr. Horning of the bankers association.

Mr. Hanson says state environmental legislation, and a newly enacted growth management plan, will tend to flatten overall growth in the region. Nevertheless, he says, "High tech is doing very well out here, and we're lending to a very diverse group of entrepreneurs."

The SBA portfolio at Heritage, which last year returned 1.4% on assets, also is diverse -- and the bank, by participating in Service Core of Retired Executives workshops, is trying to diversify even more.

Mr. McLaughlin says he has worked with other SBA offices, and describes the Seattle office as the best of the lot. "I just have one minor complaint, which is that they're understaffed."

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