The Small Business Administration's loan program is saving the Center for Chiropractic and Wellness $2,700 per month.
That's how much the North Raleigh practice, owned by chiropractors Darcy Ward and Jennifer Greenfield, is saving on its monthly debt payments after obtaining a $290,000 SBA-backed loan from Crescent State Bank in December. Thanks to the refinancing, which extended the terms of the loan, the center's monthly payments have fallen from $7,000 to $4,300.
"We all know the economy isn't in the best shape," Greenfield said. "This gives us more flexibility and wriggle room."
Greenfield is convinced the practice wouldn't have been able to refinance its debt if the SBA program didn't exist. The reason: The practice, formed in September 2007, lacks the track record that banks insist on for conventional loans.
The SBA program jumped into the spotlight last month when President Barack Obama announced a new plan designed to boost SBA loan volume. The plan, which temporarily waives loan fees and raises SBA loan guarantees, among other things, uses part of the $700 billion bailout money approved by Congress.
The government is trying to reverse a decline in SBA loans triggered by the recession. The downturn has frozen credit markets and has made many suffering companies wary of, or unable to, take on new debt.
SBA loans are designed to help small businesses that wouldn't otherwise get credit from banks because they are too new or because they lack sufficient collateral. The loans come from banks and other financial institutions, although not all banks offer them.
Small businesses are a critical partof the economy. The SBA says they employ about half the nation's workers and created 70 percent of the new jobs in the last decade.
The number of SBA loans across North Carolina declined 22 percent in the 2007-2008 fiscal year and are down again for the fiscal year that began Oct. 1.
A total of 305 SBA loans were made statewide over the last five months - half as many as a year earlier. The amount of those loans totaled $90.3 million, a 39 percent decline.
Banking executives say the government's efforts to promote more SBA loans could pump up loan volume, but not a game-changer.
"I see it as a plus," said Tom Holder, senior credit officer at Cary-based Crescent. "I think it will help stimulate things."
Still, he said, the overriding problem is that small businesses aren't clamoring to take on debt in the midst of a recession.
"The biggest issue that we see in our economy ... is people's optimism, their confidence," he said. "People are so nervous."
Lee Cornelison, N.C. district director at the SBA, agrees that injecting more SBA loan money into the economy is a challenge.
"We're hopeful," he said. "Right now it seems to me that small businesses and entrepreneurs are hesitant to take the plunge."
The new initiative has three components:
Larger guarantees: The SBA is temporarily increasing the federal guarantee on certain loans - through Dec. 31 or until the money runs out - up to 90 percent. Previously the guarantee was 75 percent to 85 percent, according to the size of the loan. The increase aims to boost banks' confidence in making these loans.
Fee waiver: The SBA is temporarily waiving fees for certain loans, which are typically greater than the fees charged for traditional loans.
Sean Wilson, the founder of Fullsteam Brewery, thinks this will save him thousands of dollars in fees on the $350,000 SBA loan he is in the process of obtaining for the start-up brewery he is planning near downtown Durham. Wilson, who previously headed a group that persuaded state lawmakers to abolish a cap on the alcohol content of beer, appreciates the savings and is encouraged that the initiative demonstrates "that the administration sees the value and power of small business."
$15 billion stimulus: In a bid to help thaw the frozen credit markets, the Treasury Department is committing up to $15 billion to purchase small business loan securities on the secondary market.
"This is very important for many small community banks that rely on the secondary market to sell SBA loans in order to free up capital to re-lend," said Mark Harden, director of government guaranteed lending for Raleigh-based RBC Bank.
Kelley Ferrante, vice president and government lending specialist at Raleigh-based Capital Bank, said the larger federal guarantees are a positive step, but won't make a huge difference.
"If we are going to do a loan with a 90 percent guarantee, there is a very good chance that we would do it for a 75 percent guarantee," she said.
But a major plus of the government initiative, from her perspective, is the publicity the SBA loan program is attracting. That could lure potential borrowers who might not have known about the program previously.
"I think knowledge is power," Ferrante said.
Raleigh-based TrustAtlantic Bank, which opened its doors for business in 2007, doesn't yet offer SBA loans. But the bank has always planned to do so someday -- and the new government program could bring that day closer, said John Anthony, chief administrative officer.
"It has created a buzz," Anthony said. "We don't want to be caught telling people we don't have the capability to do that."
A big minus for SBA loans is what you might expect from a federal government program: mounds of paperwork.
Just when you think you've delivered everything the government is asking for - "including your first-born" - you need to provide something else, said Tina Washington, office manager at the Center for Chiropractic and Wellness.
"It takes a long time," she said. "We thought we were going to have everything finalized by October. Unfortunately, it took until December."
"But," Washington added, "it was worth it in the end."
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