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Sunday, Apr 14, 2024

SBA Rule Changes Open Eligibility Door Wider for Borrowers

The Small Business Administration changed some rules covering its two primary loan programs in an effort to broaden the eligibility of borrowers and extend credit to folks who had been deemed to have too much cash to lend to.

The big change involves eliminating a “personal resource test.” Previously, borrowers who reported having cash exceeding the amount of the loan they sought were denied, said Michael Owen, chief credit officer of CDC Small Business Finance Corp., the San Diego community development corporation that partners with commercial banks on SBA 504 loans.

“This is going to open up more opportunities for borrowers who have obviously more liquid assets who were previously excluded from the SBA’s programs,” Owen said.

That same personal resource rule applied to minority partners of a borrower. So even if the loan applicant wasn’t getting financial assistance from a minority owner, the application could be denied if that other partner had cash resources of more than the loan amount, Owen said.

Also eliminated is a “nine-month rule” covering the amount of spending that could be included on a 504 loan request. Previously, the SBA permitted allowing expenditures in a loan request of up to nine months before the loan application. Now, there is no timeline for such spending, and the evaluation will be much easier, Owen said.

Two other changes involve the process banks must follow in liquidating collateral on defaulted loans, and clearer rules covering the governance of community development corporations. CDCs are nonprofit entities that provide 40 percent in 504 loans — along with banks’ 50 percent and the borrowers’ 10 percent down payments.

“These new changes will allow more small business entrepreneurs to take advantage of SBA 504 financing to buy or construct their facilities,” said Kurt Chilcott, chief executive at CDCSBF, the largest provider of 504 loans in the nation.

The SBA 504 program is used to buy commercial real estate or equipment, and to fund expansion, while the 7(a) program is a more comprehensive loan program that can be used for most small businesses’ financing needs, including buying real estate or equipment, expanding a business, buying another business, or for working capital.

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San Diego SBA District Lender Awards: The San Diego district office of the Small Business Administration announced its annual awards recognizing the lenders involved in this activity.

The Advocacy Award for sustained commitment to small businesses went to Steve Stultz, owner of Stultz Financial Inc., who is a founding member of the National Association of Government Guaranteed Lenders, the trade group for SBA lenders.

An Appreciation Award went to Robert Lopez, Accion San Diego’s director of lending. The nonprofit microlender works with the district office, helping new businesses “graduate” to larger loan amounts through the SBA.

A Special Achievement Award went to Vibra Bank, which became a preferred SBA lender in less than five years of providing SBA loans.

The top lenders in the local district were Vibra Bank, No. 1 among small banks; Seacoast Commerce Bank, No. 1 among medium-size banks; U.S. Bank, No. 1 among large banks on dollar volume for 7(a) loans; Wells Fargo Bank, No. 1 among large banks on number of 7(a) loans; CDC Small Business Finance, largest number and largest dollar volume on 504 loans; Wells Fargo Bank, No. 1 third-party 504 lender on dollar volume; and JPMorgan Chase, No. 1 third-party 504 lender on number of loans.

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Acquisition Updates: Two major bank acquisitions affecting the San Diego market had news recently.

Sterling Financial Corp. — based in Spokane, Wash., and the owner of Argent Bank, with 25 branches in California and two in San Diego — moved closer to its $1.9 billion sale to Portland, Ore.-based Umpqua Holdings Corp. late last month, with the final approval received from the Federal Reserve Bank. The sale will close April 18, subject to customary closing conditions, the parties said.

Once the transaction is finalized, there are bound to be staff reductions, Sterling spokeswoman Cara Coon said, but no number has been announced.

PacWest Bancorp’s planned merger with CapitalSource Inc. had not received the Fed’s blessing as of April 1 as it had expected. That prompted PacWest to issue a statement that the parties “have no reason to believe, however, that Federal Reserve approval will not be received in the near term.”

Once this transaction is completed, the new entity, based in Los Angeles, will have about $15 billion in assets and 94 branches, making it the eighth-largest commercial bank in California.

Mea Culpa: In my March 31 column, a few megabanks that passed the Federal Reserve capital stress test and have branches here were left out. Leading the list is the Bank of New York Mellon, which had the largest projected Tier 1 capital ratio at 16.1 percent — 5 percent is passing. The other banks with a local presence and omitted from the list were BBVA Compass Bancshares, Citigroup Inc. and HSBC North America.

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Small Change: California Coast Credit Union opened a new branch at the renovated Conrad Prebys Aztec Student Union Building on the campus of San Diego State University. The branch is part of the naming rights agreement California Coast signed with the university for its Open Air Theatre.

Send news about locally based financial institutions to Mike Allen via email at mallen@sdbj.com. He can be reached at 858-277-6359.


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