Fee waiver helps boost SBA-backed R.I. loans

NEW BALL GAME: Elmwood Sports owner Steve Moracco used a $150,000 SBA loan to expand the business he has owned for 23 years. / PBN PHOTO/MICHAEL SALERNO
NEW BALL GAME: Elmwood Sports owner Steve Moracco used a $150,000 SBA loan to expand the business he has owned for 23 years. / PBN PHOTO/MICHAEL SALERNO

Elmwood Sports owner Steve Moracco expanded his cramped screen-printing operation at his Cranston business with the help of a $150,000 loan through Bank Rhode Island. It was one of a growing number of federally backed loans in Rhode Island and nationwide last fiscal year.
Moracco, 58, bought the Elmwood Avenue business in 1991. He’s spent about $80,000 from the fiscal 2014 loan directly on the expansion project and is now leasing space in an old mill complex down the street from his store. He’s using new equipment to quickly turn around customers’ orders for specialized jerseys and shirts.
“If I had to take this part of my business to another screen printer, I couldn’t survive,” Moracco said. “We really made an investment and it’s going to pay off.”
The increase in U.S. Small Business Administration-supported loans is likely due to a recently implemented fee waiver, according to lending specialists.
The SBA, a federal agency tasked with assisting small businesses and entrepreneurs, supported $86.5 million in loans for Rhode Island small businesses, marking a 26 percent increase from the previous year. The surge follows a dramatic drop in fiscal 2013 when SBA-supported loans fell nearly 30 percent.
The federal agency, beginning Oct. 1, 2013, implemented a new waiver program. The incentive eliminates all fees for lenders and borrowers of SBA-supported loans of $150,000, or less.
Mark Hayward, SBA Rhode Island district director, says the waiver definitely played a role in the fiscal 2014 increase.
“There’s no question about it,” Hayward said. “For loans under $150,000 we went from 64 percent to 79 percent [of the total number of loans]. That’s a pretty substantial jump.”
Nationwide, the SBA guaranteed 28,806 loans at $150,000, or less, representing an increase of 23.4 percent, which the SBA estimates saved U.S. small businesses about $19 million. The agency set a new lending record, approving more than 52,000 7(a) loans worth $19.19 billion, representing a 12 percent increase in the number of loans and 7.4 percent increase in dollar amount from the previous year. The waiver has been extended into fiscal 2015, along with an additional elimination of fees, this one for veteran small-business owners who borrow loans between $150,000 and $350,000. Fees will be reduced 50 percent for veterans borrowing SBA-supported loans over $350,000.
In Rhode Island, the SBA approved 433 loans – a 38 percent increase – guaranteed through 44 financial institutions and certified development companies.
The loans were made through the SBA’s three loan programs:
• 7(a) loan, which is the most common SBA program designed to help businesses in a general sense.
• 504 loan, designed to finance major fixed-asset purchases requiring direct loans through the SBA and capital participation from the borrower.
• Microloans, for small businesses and some nonprofits.
Four of the state’s five top 7(a) lenders – Coastway Community Bank, Bank RI, Freedom National Bank and Independence Bank – are locally owned, which Hayward says is a good sign for Rhode Island’s economy.
“What we have is local banks responding to the marketplace,” Hayward said.
Coastway Community Bank, headquartered in Cranston, lent the most 7(a) loans in fiscal 2014 with 89 and in the last six years has been one of the top three SBA lenders in Rhode Island “in terms of dollars lent and number of loans originated,” according to filings with the Securities and Exchange Commission.
Coastway made an initial public offering earlier this year as Coastway Bancorp Inc. and now publicly trades under the ticker symbol CWAY.
Coastway representatives did not immediately respond to requests for comment.
Bank RI approved the second-most 7(a) loans with 85, but had the highest dollar volume with $11.3 million. Bank RI approved 24 more loans than it did in fiscal 2013 totaling a $2.2 million increase. William Tsonos, Bank RI senior vice president, didn’t think the $150,000 waiver changed the bank’s attitude towards assessing loans, but did say SBA loans were a good indicator for the economy.
For other Rhode Island banks, the new fee waiver has notably influenced lending. In fiscal 2013, TD Bank approved just one SBA loan totaling $173,200, but in fiscal 2014 it approved 11 loans totaling $5.92 million. Kale Gaston, head of SBA lending at TD Bank, attributed a portion of the increase to the new incentive. “Our continued investment in our commitment to SBA lending in Rhode Island, along with an uptick in smaller loans because of SBA’s policy to waive the guarantee fees for loans under $150,000, has helped increase our loan commitments in the state,” said Kale Gaston, head of SBA lending at TD Bank. “The smaller loans make more economic sense to the borrowers and have become an attractive product.”
Other leaders include South Eastern Economic Development Corp., which approved the most Rhode Island microloans with five, totaling $81,000.
For the second year in a row, Massachusetts-based Bay Colony Development Corp. approved the most 504 loans in Rhode Island as a CDC. It approved 11 totaling about $7.2 million.
When dealing with 504 loans, typically, banks are responsible for 50 percent of the loan, a CDC/SBA 40 percent and the borrower 10 percent. BankNewport approved the most 504 loans as a bank with six totaling $2.1 million, but fell from No. 4 in fiscal 2013 to No. 7 overall for SBA lending in Rhode Island.
BankNewport went from 17 504 loans totaling $7.7 million to six totaling $2.1 million in Rhode Island in fiscal 2014.
BankNewport declined to discuss the Rhode Island decline. But Douglas Hanson, BankNewport vice president, commercial loan officer and SBA specialist, in an email noted the bank’s SBA-backed lending in total dollar value throughout New England went up.
“Although BankNewport’s total number of units [in New England] in 2014 as compared to 2013 was down by 15 percent, the total dollar volume increased by 92 percent for both 7(a) and 504 volume,” Hanson wrote in an email.
It’s too early to predict whether Rhode Island SBA-supported loans will continue to increase in fiscal 2015, says SBA lender-relations specialist Gregory Gould, but with the fee-waiver extension – along with the veteran’s waivers – Gould expects and hopes the upward trend will continue. •

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