2009 Los Angeles County SBA Small Business Lending Declines

Hello All,

The number of loans backed by the U.S. Small Business Administration made to Los Angeles County area companies greatly declined in 2009 for the second straight year, underscoring businesses’ complaints that it’s extremely difficult to get a loan. What’s more, the lack of lending is raising concerns about the prospects of an economic recovery.

According to data recently released by the SBA, the number of loans made in the L.A. district office (Which covers the Los Angeles and Ventura Counties) in fiscal 2009 fell by 53 percent to 1,747.The dollar amount dropped by 34 percent to $674 million.

Those drops are from 2008, which itself saw big drops from the previous fiscal year, which ends in September.

2009 SBA loan volumes declined for many of the areas previous top lenders. Ranked in 2008 among the largest lenders JPMorgan Chase & Co. and Capital One Financial Corp did not make a single Los Angeles County area SBA loan in 2009.

Even the top local lender, Wells Fargo & Co., originated 15 percent fewer SBA loans in 2009 than in the previous year. Also, two years ago Bank of America was the largest local SBA lender, originating more than 1,000 loans for a total of about $40 million. In 2009, however, the bank made just 24 SBA loans in Los Angeles for a total of less than $1 million.

The reasons for the decline in SBA lending are disputed. Some bankers blame the economy, which has shrunk the pool of creditworthy companies. Business owners say banks, which are still on the hook for a portion of nonperforming SBA loans, have tightened their standards. Others point to the secondary market for securitized SBA loans, which ground to a halt for a time.

Whatever the reason, the landscape for small business financing has shifted dramatically.

The Purpose of the SBA (Small Business Administration)

The SBA was created to help small businesses receive financing when they might otherwise struggle to obtain a traditional bank loan. Two of the administration’s programs – the 7(a) loan program for entrepreneurs to start and grow their businesses and the 504 fixed-asset financing program for the purchase of land and equipment – account for the bulk of loans originated.

Shifting Priorities

Indeed, several major lenders have shifted the focus of their small business lending away from SBA. Capital One, which was the sixth largest SBA lender in Los Angeles in 2008 with 161 loans, did not make a single local SBA loan in 2009. Some banks are now focusing on loan programs with the highest profit margins, which would not likely include the typically small SBA loans.

Cause for Concerns

Some lenders and borrowers are worried that loan applications could drop considerably in the coming months. A pair of provisions in the government’s stimulus package meant to encourage SBA lending recently ran out of funding in October 2009. The provisions, credited with increasing SBA lending in recent months, raised the amount the government will pay the bank in case of default from 75 percent to 90 percent of the loan value and eliminated certain fees.

With supporters pushing Congress to renew the programs, industry observers and Los Angeles County small business owners are hopeful that SBA lending could return to pre-recession levels.

If you are interested in finding additional Los Angeles County small business resources, events, or filing your new Los Angeles County Fictitious Business Name/DBA, visit the Premier Los Angeles County Small Business Resource website www.LABusinessConnect.com. This website is dedicated to assisting Los Angeles County entrepreneurs and small business owners find answers to opening and operating their business locally.