NEW ORLEANS—When Rene Acremont and his wife, Samantha, opened a Tropical Smoothie Cafe franchise in Slidell in September, the process was seamless.
The couple applied for and shortly thereafter received a Small Business Administration loan for the project and any questions they had along the way were promptly addressed by the SBA approved lender who backed their loan, Acremont said.
But as Acremont prepares to expand his business to Mandeville and perhaps Metairie in the next year, he worries that he won't experience the same efficiency and wonders if he'll even be able to secure funds to make the project happen.
Acremont's original loan was backed by the commercial lender CIT Group, which until this year was the SBA's largest underwriter and which filed for bankruptcy protection earlier this month.
"We're planning on expanding," Acremont said. "Will CIT be a part of our expansion?"
It's a question as many as 1 million small businesses with loans through the bankrupt Compton are likely asking, as CIT tries to reduce its total debt by about $10 billion. The company plans to continue lending throughout its bankruptcy, but with its long-term prospects uncertain some small- and medium-size companies, like Acremont's, could begin looking for alternative financing options.
"I think the biggest thing is going to be: 'Is this going to put our expansion on hold?"' Acremont said. "Is this going to stop us from expanding as soon as we could?"
Already, CIT has already begun cutting back on its lending through the SBA. In fiscal year 2009, the company backed 142 SBA loans worth $105 million, compared with 2008 when CIT supported 1,195 loans for $575 million.
In Louisiana, the company made two loans in 2009, compared with nine in 2008.
SBA spokeswoman Hayley Matz said the SBA has increased the number of partner lenders by 15 percent to compensate for the decline in CIT backed loans.
"Through our efforts in the Recovery Act, we've really been encouraging more of our partners to participate in the SBA program," Matz said.
However, the additions do not completely make up for the dollar amount lost through CIT's reduction, Matz said.
Carmen Sunda, director of the Louisiana Small Business Development Center, said she didn't expect to see a run up in businesses requesting assistance in the wake of the CIT bankruptcy because most of the businesses the development center helps received loans from local banks and microlenders.
"Most of the folks we deal with, if they're going to do loans would go local," Sunda said. "We exhaust all local options before we go out of town."
But the general state of the economy, she said, has sent small-business owners into the center looking for relief.
"We've had, over the last couple months, a real increase in businesses looking for alternative financing," Sunda said, adding that she wasn't sure if that increase was related to CIT's widely anticipated bankruptcy or just a result of continued weakness in the credit market.
Despite the bankruptcy, there are still lending options available to strong small businesses, said Louis Greenblatt, president of Evergreen Working Capital.
"If there is any slack created by their problems, I would say their competitors would pick that up," said Greenblatt, whose New Orleans company provides working capital to rapidly growing small businesses that can't get enough financing from banks. "It certainly could create an opportunity for us and other companies like us."