Small-business loans in the county jumped 172% from a year earlier to $80.7 million in the first quarter, according to the Small Business Administration’s Santa Ana district office.
“I’ve been at the SBA since 1988 and I’ve never seen a leap this big,” said Rachel Baranick, acting district SBA director for Orange, Riverside and San Bernardino offices. “We’re definitely well into a recovery.”
Besides the surge in dollar amount, Orange County small-business lending in the first quarter increased by 180% to 194 loans, according to Baranick.
The increase was pushed by government provisions that made lending to small businesses easier.
Economists welcomed the surge after nearly two years of less lending to local business owners.
Some see the surge as a precursor to lower unemployment and a larger state recovery.
“The bulk of new hiring in Orange County comes from small and midsize employers,” said Wallace Walrod, vice president of research at the Orange County Business Council. “If they’re becoming more confident in the economic outlook within their own individual businesses, that’s a very welcome sign.”
Local small-business lending activity historically has recovered quicker in OC than in most other counties, according to David Haithcock, executive director of the Newport Beach-based California Indepen-dent Bankers Association, a trade group representing 160 community banks across the state.
“The fact that lending has increased as much as it has shows businesses are growing and hiring more people,” Baranick said. “I’m hopeful this symbolizes a turnaround for our local economy.”
Lending in the Inland Empire also rose in the first quarter, but not as much as in OC, according to Baranick.
“OC represents basically half the tri-county market,” she said. “So it’s a bellwether to watch as the whole region moves out of recession and into full-scale recovery mode.”
Even the hardest-hit sectors are starting to show activity, Haithcock said.
“We’ve heard from several bankers in the county that small-business (lending) activity is the strongest they’ve seen in nearly two years,” he said.
Many bankers in the county are “cautiously optimistic” about opportunities in areas such as construction and real estate, according to Haithcock.
“Lenders are starting to see some movement in those sectors,” he said. “Up to this point, construction and real estate lending has been very, very slow. If small businesses are starting to consider expanding their outlays in those areas, that’s a very encouraging sign.”
Stimulus
Another factor in the upturn is that new loan provisions have been implemented through the American Recovery and Rein-vestment Act, according to Baranick.
“The stimulus package has helped increase lending and thaw out credit markets,” she said.
The original act was signed last February, but several key provisions have been extended by Congress to increase the SBA guarantee to 90%, Baranick said.
The government agency in the past was limited to guaranteeing 75% of a small-business loan.
New provisions also have eliminated some fees and cut others in the lending process to borrowers. “Essentially, the changes can save thousands of dollars for small businesses in taking out a loan,” Baranick said.
The format of the 7A loans—which are more general and allow for broader use of money—also makes it easier for small businesses to find money. The bulk of lending activity is through these types of loans, Baranick said.
From October until the end of March, SBA loans in OC totaled nearly $185 million, according to the SBA.
For the same period a year earlier, about $85.1 million in loans were approved.
In terms of number of loans, activity nearly doubled. For the six months through March, the number of SBA loans went from 212 to 405 in the county.
Selling Loans
Some in the industry expect this to grow even more after the SBA agency starts pooling loans together and selling them to participating banks.
“That program has already been authorized and we’re hoping it will be activated in the next 30 to 60 days,” said Joan Earhart, executive vice president at Fullerton Community Bank. “It’s going to be very important to banks and will help with the commercial real estate financing being offered through the program.”
Michael Owen, chief operating officer of San Diego-based lender CDC Small Business Finance Corp., is projecting a big jump in SBA activity when the agency starts implementing first-mortgage pooling programs. These programs allow participating banks to sell loans into secondary markets. In theory, that would create an even bigger pool of money to use for small-business lending.
“We’re clearly regaining traction in Orange County, but to continue the momentum, other initiatives in the 2009 Stimulus Act need to be implemented,” Owen said.
Owen’s company is one of the most active locally in certain types of SBA lending.
Part of the recent pickup in SBA lending can be traced to smaller community banks becoming more active, according to the California Independent Bankers Associa-tion’s Haithcock.
“They’ve definitely become more interested in filling a void that was left when the bigger players stepped back from making loans to small businesses,” he said. “As the market comes back, community banks have been ready and waiting.”
News that banks have started to move back into the market in larger numbers is an encouraging sign of OC’s economic recovery, according to Haithcock.
“It typically takes six months or so into an economic rebound before small-business lending picks up,” he said. “The new SBA data indicates that process is starting to take hold. There seems to finally be light at the end of the tunnel.”
