Cold feet by borrowers, banks trims SBA lending

The number of companies borrowing through Small Business Administration programs in Carson City and Washoe County has declined by nearly 60 percent since 2007, and the amount they've borrowed has fallen by about 35 percent.

So is the sharp decline caused by tight-fisted lenders or overly worried borrowers? Both factors are cited by bankers and other observers.

But there's no doubt that the pace of lending has fallen sharply.

Since October about the time that the Lehman Brothers collapse deepened the financial crisis banks have made 40 loans through SBA-guaranteed programs in Washoe County and Carson City.

Assuming that pace continues for the next six months, the dollar amount of lending would be about the same as a year earlier. But the number of business projects financed by SBA loans would be down by about 42 percent from the 138 projects financed during the federal fiscal year that began Oct. 1, 2007.

The falloff is all the more dramatic compared with last year before the recession settled in the federal fiscal year that began Oct. 1, 2006. During those 12 months, lenders in Carson City and Washoe County made 197 SBA-guaranteed loans totaling nearly $61 million.

The decline in loan closings is only part of the story, says Tom Burke, senior vice president for SBA lending with Wells Fargo Bank. Borrowers, he says, aren't coming through the bank's doors.

"People just are too nervous with what is going on in the economy. They don't want to take that leap," Burke says.

During the past six months, figures provided by the SBA show that Wells Fargo hasn't made a single SBA loan in Washoe County and Carson City. In the previous federal fiscal year, the bank made 20 SBA-guaranteed loans totaling nearly $2.5 million in the two counties.

Burke says those sorts of swings in lending aren't unusual, particularly in small geographic areas such as the two northern Nevada counties. Statewide, Wells Fargo has made more than $10 million in SBA-guaranteed loans since October.

Further acting as a drag on small business lending, he says, is the inability of business owners to tap into home equity to provide equity capital for their companies. Declining home values have wiped out that source of small-business financing.

And psychologically, he says, the nation is focused on paying down debt rather than taking on new loans.

Another reason for the slowdown, says Bobbi Bennett, president of the Nevada State Development Corp.: Banks are so busy working through piles of bad loans and so focused on preserving their capital that they're simply not lending much to small business borrowers these days.

Banks are understandably leery of loaning to small businesses during an economic downturn, says David Leonard, the SBA's senior area manager for northern Nevada.

If a potential borrower is posting a decline in sales, bankers question whether loans will be repaid, Leonard notes. And most banks have tightened their qualifying standards for business lending since the financial crisis began developing.

In the past, Bennett says, banks that didn't want to make SBA loans themselves would refer borrowers to Nevada State Development Corp. as an alternative. But those referrals have slowed as well.

Nevada State Development Corp. is handling about half the number of loans that it handled a year ago. The company specializes in SBA-guaranteed loans for real estate and equipment.

"It's been a rough few months," Bennett says.

But she says Nevada State Development Corp. has seen some very early, very modest signs of an uptick in borrowing. The federal stimulus package includes a reduction in fees for SBA borrowers, and that's been enough to stir interest among some potential borrowers. But they haven't yet closed deals, Bennett says.