Lean Lending

A sluggish economy prompts a slowdown in SBA-backed loans.

July, 2002

For the third consecutive year, the number of U.S. Small Business Administration-guaranteed 7(a) loans has declined. Although the SBA-backed loans represent a small fraction of the total volume of loans made to Hawaii’s small businesses, it is a situation the organization would like to flip on its head.

“Last year, the number of SBA-guaranteed loans totaled $36.5 million. I actually want the banks to increase that figure to $60 million to $75 million. It hasn’t ever been that high, but it’s been much lower,” says Andy Poepoe, district director of the SBA’s Hawaii District Office. Hawaii’s $36.5 million is but a fraction of the $16.5 billion in national financing the U.S. SBA backed last year.

The organization, which “guarantees” loans – for a nominal fee – for small businesses that haven’t established credit, is taking steps to increase its loan volume, including training programs for bank loan officers and streamlining the paperwork process. However, it’s really a number of outside factors that are contributing to the declining demand for SBA loans. “I can’t say for sure, because First Hawaiian has actually increased our number of SBA-guaranteed loans, but probably part of why the overall aggregate has gone down is in relation to the current recession,” says Donald G. Horner, vice chairman of First Hawaiian Bank’s Retail Banking Group. “Typically, SBA-loans are term loans, which means companies are in an expansion mode. When you’re in a difficult economy, people are just trying to get out of debt, not get into debt.”

Horner says that is the reason First Hawaiian ranked No. 1 in total dollar value of SBA-backed loans last year, with 44 loans totaling $8.1 million. In a tough market, the company has taken a more proactive approach in order to maintain market share. As of March, First Hawaiian was already halfway to last year’s total, and is expecting to end the year with 70 SBA-guaranteed loans.

“We would definitely like to see the number of SBA loans increase, but in the years past, it was a very cumbersome approval process. So it caused banks like ourselves to look at other avenues and methods of guaranteeing that loan,” says Corbett A. K. Kalama, senior vice president and manager of First Hawaiian’s Oahu Region Branch Banking Division. Kalama points out that there are fees assessed to the client when receiving an SBA-backed loan, and that there are also a number of other private- and public-sector guaranteed-loan programs competing with the SBA.

“We first attempt to do the loan through normal underwriting channels, then if the answer is no, the loan automatically goes into queue as an SBA opportunity,” says Horner. “But there are also other avenues beyond the SBA, including rural facility loans, agriculture loans, etc. Our job is to address our customers’ needs in the best possible way through the various facilities that are out there.”

Candice Naito, vice president and manager of Central Pacific Bank’s Business Banking Division, says the availability of SBA loans has actually opened up new doors of opportunity for the state’s fourth-largest financial depository institution. “Most of our business is actually in the mid-market, but because of the SBA guarantee, we’ve been able to provide loans to small businesses with no proven track record,” she says.

Central Pacific Bank delivered 20 SBA loans last year totaling $4.9 million, and is hoping to increase that figure by 10 percent this year as the bank increases its focus on business banking. “I don’t think banks are being apprehensive about backing loans,” says Poepoe. “Things have maybe just naturally slowed down. But businesses are getting back on their feet, and as they come to more confidence in the long-range economic picture, then I believe loan business will start picking up again.”

SBA Hawaii District Loan Activity for six-month period ending March 2002
Bank No. of Loans Gross Loan Amount (in $Mil)
First Hawaiian Bank 22 4.3
Citizens Security Bank 17 1.7
Central Pacific Bank 12 1.2
Bank of Hawaii 8 1.0
American Savings Bank 8 0.8
Hawaii National Bank 5 0.3
Bank of Guam 4 0.3
City Bank 2 0.2
Business Loan Center 2 1.2
GE Capital 1 0.1
Citibank 1 0.07

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Jacy L. Youn