Valley Banks Expect Pinch From Limit on SBA Loans

The Small Business Administration’s announcement last week that it will impose a $500,000 ceiling on loans offered through its popular loan guarantee program was seen as a serious setback by some San Fernando Valley banks.

“We’re going to lose an awful lot of business,” said Frank Ures, chief executive at American Pacific State Bank in Sherman Oaks, one of the largest SBA lenders in Southern California. Ures said about 75% of American Pacific’s SBA loans are over $500,000 and that the ceilings could hurt the bank’s profits by as much as 15%.

Through its loan guarantee program, the SBA helps provide low-interest financing to small-business owners. Generally, commercial banks like American Pacific make the loans, but the SBA insures up to 90% of the money disbursed.

Previously, there was no ceiling on loan size, though the guaranteed portion of each loan could not exceed $750,000. But starting Jan. 1, no loan over $500,000 will be considered, and the maximum guaranteed portion will be about $450,000. The SBA said it needed to impose a ceiling because it would otherwise run through its $7.8-billion federal allocation for the 1995 fiscal year.

Local banking executives said the SBA’s decision came as a surprise and a disappointment. TransWorld Bank in Sherman Oaks recently joined the SBA’s Certified Lenders Program, which allows it to process SBA loan applications up to two weeks more quickly than non-certified lenders. The bank said it was hoping to double the size of its SBA loan portfolio this year to $10 million, but now expects to fall $1 million short of that goal.

American Pacific State Bank has loaned more than $25 million through the SBA program this year, Ures said. He added that the new SBA ceiling could be particularly damaging to Southern California lenders.

The region’s struggling economy has made small businesses reluctant to take out capital improvement loans, which tend to be relatively small, Ures said. As a result, most of American Pacific’s loans have gone to businesses buying commercial real estate, and those loans tend to be larger, especially because real estate prices are higher in Southern California than in most areas of the country.

“We’re going to stay in the SBA program,” Ures said. “But right now we’re going to have to do some creative planning to try to make up the difference.”