Shutdown leaves SBA lending in limbo

October 8th, 2013

Shutdown leaves SBA lending in limbo

In a recent article in the Silicon Valley Business Journal, the government shutdown in highlighted. Our very own, Bruce Whitaker was quoted on the impact to the SBA lending sector.

Shutdown leaves SBA lending in limbo by Nathan Donato-Weinstein

Time is money — especially when you’re waiting to be approved for a loan.

But the ongoing federal shutdown means many applicants will likely have to wait longer to find out if they qualify for financing backed by the U.S. Small Business Administration.

More than 60 percent of SBA employees are furloughed, and the federal agency has pressed pause on processing new applications for its popular 7(a) Loan Guarantee and 504 Certified Development Loans. In fact, all SBA programs except for its Disaster Loan Program and the SBA’s inspector general office are closed during the shutdown. The others? They’re considered nonessential government functions.

Small business owners are likely to disagree: SBA-backed loans are big business in Silicon Valley. In 2012, more than $205 million in 7(a) and 504 loans were made in Santa Clara County, according to Business Journal research. In San Mateo, that number was $85.5 million.

Local industry leaders say the impact is still unclear, but so far the shutdown hasn’t killed any deals in progress.

“We have to let borrowers know that for deals in process, no one at SBA is there to review and approve them,” said Bruce Whittaker, senior vice president for TMC Financing. TMC is a Certified Development Company that specializes in SBA 504 loans, which provide financing for fixed assets such as real estate. “Every day that goes by, unfortunately, it creates an unknown.”

Ken Manina, senior vice president and regional sales manager for San Jose-based Bridge Bank, said the impact of the shutdown was dulled somewhat because of a big push to submit loans prior to the closure. Bridge was the No. 7 SBA lender in Silicon Valley in fiscal year 2011 by number of approved loans, according to the most recent Business Journal ranking.

“We really expedited those loans that were pretty far along here through the approval process,” he said. “I met with a lot of applicants to get the signatures. As a preferred lender participant, once you have the borrower’s signatures and bank approval, it’s all electronic.”

TMC’s Whittaker said he is still submitting new applications electronically to get them into the queue for when the administration comes back online.

The timeline is particularly important for 504 real estate loans because the deals typically follow a 60-day close schedule.

There’s some good news: Whittaker said 504 deals that closed escrow between Aug. 14 and Sept. 18 and slated to fund on the next funding date (Oct. 16) should still fund normally. It’s the 504 deals scheduled to fund on the following funding date — Nov. 13 — “that potentially could be impacted if this went on and on,” he said.

The upshot? “The longer it goes on, the greater the chance that deals will require contractual extensions” in which sellers and buyers agree to extend a closing, he said.

Bridge Bank’s Manina said the bank is prepared to extend interim loans to qualified applicants who can’t wait for the SBA to get back online. The bank hasn’t gotten to that point yet and would only go down that road should the SBA determine that such transactions would be eligible for refinancing.

SBA hasn’t said whether or not it would refinance those deals, and getting someone to answer your questions isn’t easy in the midst of the first government shutdown in 17 years.

I called down to the SBA press office in Sacramento, where I received the following outgoing voicemail message from the media liaison:

“Thank you for your call. I am not able to respond due to the lapse in appropriations that began Oct. 1, 2013.”