The number of SBA loans originated in Orange County dropped this year, but the average loan shot up 30% to more than $320,000, increasing the total loaned by nearly $20 million to $137 million.
The 19 Small Business Administration lenders on the Business Journal list, ranked by total amount of dollars loaned for the 12 months ended Sept. 30, originated 428 loans to OC companies this year, 7% fewer than in the 1998 period.
Industry experts said the climb in amount per loan was due to the increased use of SBA loans to cover real estate transactions.
“There is a decreasing supply of existing buildings. A lot of small business owners are looking at SBA lending to house their businesses,” said Katrina Fleener, the VP of No. 5 Citizen’s Business Bank in Ontario.
SBA loans, which are government-guaranteed, only require about a 10% down payment versus the banking industry’s 25%, making SBA loans easier to attain.
The growing OC economy is affecting SBA lenders in an interesting way: pre-payments of the loans are way up.
“We’ve had a lot of SBA loans paid off,” said Fleener . “Once someone (or business) develops some equity, they can refinance. We are trying to keep them from pre-paying in the first couple of years,” said Jim Ely of the National Association of Guaranteen Government Lenders.
When businesses repay loans several years before maturity, lenders’ interest revenue is decreased. So the lenders are backing a bill in Congress that would set pre-payment penalties, so they can recoup profits from the loans they issue if the loans are paid off before maturity.
Lenders have also been hit by consolidation within the banking industry, which has sharpened competition and price pressure, and the lenders have seen a decrease in profit margins.
“SBA lending is a very competitive business and there are a lot of lenders chasing a limited number of deals, and the customers benefit,” Ely said.
“We are getting paid less for what we originate,” said Dave Scherer, the executive vice president of Bank of Yorba Linda, the No. 1 lender on this year’s list.
But Bank of Yorba Linda decreased the number of SBA loans it originated from 57 last year to 35 in the past 12 months, and its total loaned dropped from $28.2 million to $18.5 million.
Scherer said the decrease was due to the bank focusing on commercial loans in the last period.
“We are doing more real estate commercial loans than (SBA) loans,” Scherer said.
No. 2 Heller First Capital Corp. increased its total dollar amount dispersed by 73% to $15.3 million, even though it only issued three more loans than in the previous period. This increased the dollar amount per loan by 52% to about $200,000.
The growth in SBA lending in OC “is really no surprise,” said Donna Jordan of Heller. “It has been the best it has ever been. People do things now (starting businesses) that they would never have done (before).”
Heller Financial is the largest SBA lender in the state and approved $165 million in SBA loans statewide in fiscal 1999.
“We are tremendously proud of this achievement. California is very competitive in SBA lending in terms of pricing and the number of finance providers,” Jordan said.
With 50 originations totaling $12.6 million, a 253% increase, Wells Fargo Bank jumped up to the No. 3 spot from No. 12 last year, when it originated 22 loans.
No. 6 First Union National Bank purchased last year’s No. 2 SBA lender, The Money Store, which held the No.1 spot on our SBA lender list for most of the decade.
Another change to the list is newcomer CIT Group, which acquired Newcourt Small Business Lending Co. on Nov. 15. CIT is No. 9.
Citizen’s Business Bank grabbed the No. 5 spot with almost $10 million in loans since it purchased last year’s No. 4, Orange National Bank.
The local SBA office in Santa Ana handles Orange, Riverside and San Bernardino counties. In the 1999 fiscal year, the Santa Ana office gave about half of its loans, more than $200 million, to women and minority-owned businesses. n
