Fed dollars have local banks on the lend

More dollars for small business loans may soon be available here and elsewhere.

People's Bank of Commerce is on track to write $35 million of Small Business Administration loans this year after writing more than $36 million worth last year. PremierWest Bank this month announced formation of a guaranteed government loan division with loans backed by the SBA and U.S. Department of Agriculture.

Such lending is considered a specialty area, often overlooked by major players, but new legislation is making it more attractive to banks.

A bill that passed in the Senate last week changes Small Business Administration loans, raising the maximum lending amount for certain types of SBA loans. It provides a $30 billion lending pool providing community banks to lend more to small-business customers.

"The maximum size has been $2 million," said Ken Trautman, People's Bank of Commerce's president and chief operating officer. "The bill raises that to $5 million. The nice thing is the guaranteed part of the loan doesn't have to be included in the lending limit."

So for commercial real estate-backed loans that have been essentially capped at $3 million, People's Bank will be able to extend to as much as an $8 million plateau. "There aren't many requests for over $8 million in our market," Trautman said.

Traditionally, the SBA has guaranteed 75 to 80 percent of such loans, the pending bill would up that to 90 percent.

Trautman said motels have been users of such loans, in part because lenders have been more reluctant to cover the full loan in what is often a volatile industry.

With 10 percent down, banks would take the risk on 50 percent of the loan with the SBA guaranteeing the remaining 40 percent at a fixed rate for 20 years.

Thomas Knox heads up People's Bank of Commerce's SBA operations, which have preferred-lender status, allowing the bank to make its own decisions without SBA approval.

Ken Ferreira was hired to lead PremierWest's efforts. He previously was senior vice president and chief credit officer for Wachovia Bank's national SBA lending program. PremierWest has standard status, Ferreira said, but is applying for preferred lender status.

"PremierWest has done some SBA lending in the past, but it's been very limited," Ferreira said. "There's been s couple starts and stops. We've been taking information over the last month or so. I don't known what kind of volume we will do, but there is a big need for it."

The SBA maximum rate is prime plus 2.75 percent, putting the current rate for a variable loan at 6 percent. The fixed rate is typically 9 percent.

"These type of loans are really designed for a small manufacturer who wanting to buy their own equipment and own their own building," Trautman said. "We used them for hotels because of the industry risk and cyclical risk. You really have to have a specialist to know what's going on, that's why the regional banks have stayed out of it; frankly, they haven't needed it."

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