Speedier approvals, tight credit market, pandemic aid programs help grow SBA loan activity

Nicheisha Walker last April was able to purchase Rockville Bank’s former South Windsor headquarters and transform the property into a bright and spacious home for her Sallyz Center for Autism thanks to a $1.8 million loan from the U.S. Small Business Administration.

Walker had been turned down by her bank, but was able to tap a loan through SBA’s 504 loan program, which partnered funds from the federal agency and Springfield-based New Valley Bank & Trust.

“The SBA was a little bit kinder with my process,” said Walker, who founded Sallyz Center for Autism, a provider of one-on-one services to children with autism. “It was actually smoother than the regular bank I used. They were able to work with me and put my projections together. I don’t think I would have gotten it without the SBA.”

Walker’s loan was part of a wave of 894 SBA loan approvals totaling $363.7 million for Connecticut borrowers in fiscal year 2023, which ended Oct. 1. That was a 13% increase year-over-year in the number of approved borrowers, and an 18.5% increase in loan volume.

Connecticut SBA lending has been generally trending upward over a five-year period, but with dramatic year-to-year swings.

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Lenders, borrowers and SBA officials say tightening credit from traditional lenders and higher interest rates are partially responsible for a rise in Small Business Administration lending. They also credit increased awareness of, and trust in, SBA’s offerings.

Growing reputation

Philip Gagnon, principal of real estate broker and consultant Colliers in Hartford and New Haven, said lenders have less ready cash to lend out as depositors shift resources to more lucrative U.S. Treasury bills.

Partnering in SBA lending programs offers banks more security for their strained lending capital, he said.

For borrowers, SBA programs offer long-term, fixed interest rates and the ability to avoid balloon payments, Gagnon noted.

“The traditional lenders, their funds have dried up to some extent,” Gagnon said. “Treasuries have really taken a lot of bank deposits out of traditional banks, so they have less money to lend.”

At the end of the third quarter of 2023, Connecticut-headquartered banks, not including Stamford-based Webster Financial Corp., held just over $28 billion in net loans and leases, up from $22 billion in the year-ago period and $22.3 billion two years earlier, according to Federal Deposit Insurance Corp. data.

In the past, property sellers entertaining multiple offers tended to favor buyers who didn’t depend on an SBA loan, which was seen as a cumbersome and lengthy avenue for raising cash, Gagnon said. But the gap in the SBA’s lending approval time has “pretty much gone away,” he said.

“They’ve gotten a lot more efficient in handling their portion of the loan,” Gagnon said. “It’s almost seamless at this point. That’s an influencer on the 2023 numbers. The SBA has been much easier about pushing money out the door.”

The Community Investment Corp., a Hamden-based, SBA-affiliated nonprofit lender, between fiscals 2020 and 2023 arranged $107.4 million in loans to qualifying businesses in Connecticut, Rhode Island and Massachusetts.

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Louis G. Silva

CIC President and CEO Louis G. Silva agreed an increasing scarcity of credit availability through traditional banks was a prime factor in the SBA’s 2023 upswing.

CIC was involved in a loan that allowed Cheshire-based CNC manufacturer New Designz to pay $1.3 million for its new headquarters, at 30 Diana Court. The purchase will allow the manufacturer to consolidate from multiple leased spaces into one, more efficient location.

CIC also participated in a nearly $2.6 million loan to allow fast-growing Griffin Welding to buy and outfit a 20,000-square-foot Waterbury industrial building as its headquarters.

Peter Griffin, owner of Griffin Welding, said he wouldn’t have been able to buy a building to capitalize on exploding demand without the SBA program.

He said he didn’t have enough of a down payment for a traditional loan.

David Dziob, a principal of New Designz, also said SBA backing unlocked a loan he might not have otherwise secured.

“The SBA is one of the reasons we got a loan because the banks were being so tight,” Dziob said.

Silva said he expects demand for SBA loans to remain strong in fiscal 2024, even with economic headwinds. The typical 10% down payment required by SBA’s 504 loan program appeals to borrowers wanting to conserve cash, he noted.

Ups and downs

The SBA’s “flagship” 7(a) loan program had a banner year in Connecticut during fiscal 2023, with 744 approvals totaling $290.4 million. That’s up from 636 loans, totaling $234.7 million the prior year, a nearly 24% increase in overall dollars approved.

Under the 7(a) program, the SBA guarantees lenders repayment of between 75% and 85% of loans up to $5 million to qualifying small businesses. This program can be used for real estate, construction, debt refinance and working capital.

The increase in the 504 program wasn’t as impressive.

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Ninety Connecticut borrowers were approved in fiscal 2023, down from 104 in fiscal 2022. But average loan sizes jumped from $680,625 in fiscal 2022, to $797,011 in fiscal 2023.

That led to an overall 1.3% increase in 504 program lending volume to $71.7 million.

Acting through Certified Development Corporations, like CIC, the SBA takes on up to a 40% share of a 504 loan, which can be used for equipment and property purchases. The SBA’s share can be up to $5.5 million.

Banks carry 50% of the loan and borrowers are typically required to put down 10% equity, but that could range up to 20% under certain conditions.

Improved access

Buffalo-based M&T Bank was Connecticut’s top 7(a) lender in the most recent fiscal year, with 126 loans totaling $18.1 million. M&T has long been authorized to verify borrower eligibility that otherwise would have to go through the SBA, speeding approvals.

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Christina Smaczniak

Christina Smaczniak, director of government lending for M&T, also noted that pandemic-inspired small business assistance programs, like the Paycheck Protection Program, introduced many companies to the Small Business Administration, enhancing its profile.

“I believe that’s changed the way business owners think about SBA lending, and they are more open to leveraging the program to get access to capital when they are not eligible for conventional credit,” Smaczniak said.

The SBA’s ability in recent years to waive upfront borrower fees for most 7(a) applicants has also likely played a part in increasing use of the program, she said.

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Catherine Marx

Catherine Marx, Connecticut SBA district director, said she agrees that pandemic-aid programs helped raise the profile of the federal agency.

“The SBA played an oversized role in helping small businesses recover, so there’s no doubt that role and that attention to the SBA has helped us in 2023 reach more small businesses, reach more entrepreneurs, so they now look at the SBA first, rather than later,” Marx said.

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Brett Eagleson

Brett Eagleson, vice president of commercial real estate for Rhode Island-based The Washington Trust Co., said he’s seen a big improvement in the marketing and processing of SBA loans. Speedier and easier approvals have increased the appetite of bankers, in addition to borrowers, he said.

“I think in the past, dealing with SBA and the federal government wasn’t always the easiest thing to do,” said Eagleson, whose bank has $7.2 billion in assets. “It was a lot more cumbersome. But the SBA has improved dramatically on that.”

Eagleson said Washington Trust is eager to participate in 504 program loans because SBA shares the risk, and it allows the bank to develop new client relationships. Borrowers tend to migrate other accounts to banks participating in their SBA loans, he said.

Walker said she moved Sallyz Center for Autism’s business accounts to New Valley Bank because of the positive experience with her 504 loan.

The new South Windsor building is roughly seven times as large as the location Sallyz leased in a nearby retail plaza. Walker spent about $250,000 on repairs, renovations and furnishings. The first two of three floors have been repainted in comforting hues of light green and blue.

A new mural depicting children walking a path in a rural landscape fills one wall of a first-floor hallway. Sallyz started operating in its new space in November.

“It’s been going great,” Walker said. “The kids and parents are loving the new space. It’s a beautiful space. It’s a beautiful building.”