Small-biz lending by smaller banks driving growth

A GOOD FIT: When Alayne White, owner of Alyne White Spa, needed a new home for her business, Freedom National Bank worked with her to create a financing package that helped her with working capital as well as upgrading her new location in Bristol. Ashley Piccerelli gives a facial to customer Kerry Santerre. / PBN PHOTO/MICHAEL SALERNO
A GOOD FIT: When Alayne White, owner of Alyne White Spa, needed a new home for her business, Freedom National Bank worked with her to create a financing package that helped her with working capital as well as upgrading her new location in Bristol. Ashley Piccerelli gives a facial to customer Kerry Santerre. / PBN PHOTO/MICHAEL SALERNO

Lending to small businesses through U.S. Small Business Administration programs is on the upswing in Rhode Island, thanks in large measure to the efforts of community banks, although a traditional SBA powerhouse is back on course in the Ocean State.
“It seems there’s been aggressive response to the market from the smaller, local, community banks – Coastway Community Bank, Bank Rhode Island, Independence Bank and Freedom National Bank – their lending has gone up significantly,” said SBA Rhode Island District Director Mark S. Hayward.
Those four banks, in that order, are the top four SBA lenders in the state as of March 31 for the fiscal year that began Oct. 1, 2013. That ranking is for SBA’s 7(a) loans, the most common program that provides capital for businesses to use for general purposes.
SBA-supported loans to Rhode Island businesses totaled $41.9 million from Oct. 1, 2013, through March 31, 2014, a 20 percent increase over the $34.9 million in SBA loans during the same period a year earlier. Those totals include 7(a) loans, as well as participation in the SBA’s 504 program, under which a bank is responsible for 50 percent of the financing, the SBA for 40 percent through a certified development company and the borrower for 10 percent. The 504 loans can be used for the purchase of real estate and large equipment. The total SBA loan amount also includes microloans, which since fiscal 2010 all have been done through the South Eastern Economic Development Corp., based in Taunton.
Banks lending into the Ocean State did 172 SBA loans during the first six months of the fiscal year, compared with 135 loans a year earlier, said SBA Rhode Island Economic Development Specialist Norm Deragon.
One likely reason for the increase in SBA lending is the elimination of fees to borrowers and lenders for loans up to $150,000 in fiscal 2014, Deragon said.
That fee elimination hits right where Rhode Island small businesses are likely to take advantage of it.
“Seventy-eight percent of all our loans are under $150,000,” said Hayward. “So I think having no fees to borrowers and no fees to lenders has been a huge factor in small businesses getting access to capital.” Market factors have likely contributed to SBA lending as well, he said.
“Probably the businesses in the community have credit scores that are better, and they’re looking for opportunities to expand,” said Hayward. “The economy is slowly, but surely, beginning to expand.”
At the same time, some larger banks that were higher up in SBA lending rankings before the Great Recession, including RBS Citizens Bank, and then slipped a bit, appear to be reviving an emphasis on SBA lending.
Citizens Bank was the No. 1 SBA lender in fiscal 2008, with 84 loans totaling $3.5 million. Although Citizens topped the list in number of 7(a) loans in 2008, the dollar amount was less than other banks that year, such as Coastway, which was a credit union at the time, and The Washington Trust Co., ranked second and third, respectively, both of which did $9.2 million in 7(a) loans in 2008.
Citizens ranked No. 3 in 7(a) loans for a few years after 2008, but by 2013 had fallen to No. 6, based on loan volume, although its 15 7(a) loans were worth a total of $3.4 million. As of March 31, Citizens ranked fifth, with 11 loans totaling $3.1 million.
“As we continue our commitment to providing lending, cash management and other services to small businesses, we have grown our overall small-business lending volume,” said RBS Citizens spokeswoman Lauren DiGeronimo. “Our strong history of making SBA loans is part of this mix and we have recently developed a dedicated SBA lending team.”
Sovereign Bank, which was rebranded as Santander Bank in 2013, ranked fifth on the SBA lender list in 2008 with 30 SBA 7(a) loans totaling $3.4 million. In 2013, Sovereign ranked seventh with 15 loans at $2.9 million. As of March 31 Santander ranked No. 10 on the fiscal 2014 SBA lender list with five loans totaling $331,000.
Bank of America ranked No. 10 in 2008 with six loans totaling $205,000. But in 2013, Bank of America didn’t do any SBA 7(a) loans, according to SBA documents, but did participate in two 504 projects for a total of $1.2 million. And as of March 31, Bank of America was back in the SBA rankings at No. 13, with two 7(a) loans totaling $325,000 and 504 project participation at $480,000. “We still offer SBA products in the 7(a) and the 504 program,” said Don Vecchiarello, Bank of America spokesman for the small-business division, who is based in Charlotte, N.C., as well as Express Loans.
SBA Express loans allow banks to use their own documents for loans of up to $350,000, said Deragon. It’s a streamlined process used by many banks, with the loans guaranteed up to 50 percent by SBA, he said.
But while “SBA is an important partner for us, it doesn’t tell the full story of how we’re helping small business,” said Vecchiarello. “We’ve increased loans to small business by more than 20 percent in each of the last three years,” he said.
“In Rhode Island, Bank of America approved $72 million in new, [non-SBA] originations in 2013, a 10 percent increase over 2012 in loans to small business,” said Vecchiarello.
In 2008, The Washington Trust Co. ranked third in SBA 7(a) lending with 45 loans totaling $9.2 million. The bank ranked No. 10 in 2013, with six 7(a) loans totaling $522,000, in addition to 504 project participation of $2.6 million.
At the end of first quarter 2014, Washington Trust ranked No. 23 with one 7(a) loan of $55,000 and 504 participation of $178,000.
“Our SBA participation is kind of flat,” said Washington Trust Chairman and CEO Joseph J. MarcAurele. “Whenever the economy gets difficult, it’s really the small businesses that are affected the most. … [SBA programs are] an important credit enhancement for any commercial deal you would look at when you need some collateral protection.”
One Rhode Island small-business owner who is now the owner of one location, instead of leasing space, and is moving forward steadily with the assistance of SBA loans is Alayne White, who owns two spas, one in Providence and one in Bristol.
The Alayne White Spa previously was located in leased space in the Bristol Harbor Inn on Thames Street, but was damaged in a storm two years ago when the pipes froze. At the urging of a friend, White looked at a new property. “It was a beautiful building, and I saw that the spa could be downstairs and I could live upstairs,” she said. In addition to renting space for both of her spas, she also had been renting a place to live.
The building on Constitution Street had been priced at about $800,000, but had dropped to $623,000. On a mission to see if she could make it happen, White developed a packet on her business and finances and took it to five banks. She got approval from all of them.
“Then I was referred to Freedom National Bank. The bank president, Tony Botelho, came down with a couple of other people from the bank to look at the property,” said White.
“They were amazing. I asked for $623,000 and they said, ‘We’re going to give you $830,000 because you need to build out the space, and you need working capital.’ It was a fantasy loan.”
As in many real estate deals, some things changed and months later, the assessment required the property to be sold in a short sale for $430,000, said White. The total financial package turned out to be $644,000.
“Of the total financing package from Freedom National Bank, 60 percent was in SBA loans,” said David Caruso, the bank’s director of business development and strategic growth, using both the 504 and 7(a) programs.
The property was renovated and the Alayne White Spa in Bristol has been up and running since March 1, with the owner happily situated in her residence on the upper level.
“I recycled every piece of equipment, but I was also able to get a few new things, like lamps and steamers for the spa,” said White. “This is a perfect fit for my business and with the working capital, I got to do everything right.”
Freedom National Bank ranked No. 29 on the SBA lender list in 2008 with one 7(a) loan for $30,000.
The bank ranked third in the SBA lender ranking in 2013 and ranks fourth as of March 31.
“Freedom National Bank didn’t even have a small-business lending program before 2012,” said Caruso. “We have one now, and the team is the whole bank.
“From $15,000 to $4 million to $5 million, that’s the wheelhouse we want to be in,” said Caruso. “That’s our bread and butter.” •

No posts to display