As 2009 began, Joe Lynch started discussing his finance options with his bank, including his outstanding business loan.

But the owner of Doyle Systems — a Barberton light manufacturer and distributor of cleaning and inspection systems for printing and paper manufacturers — said it became clear that the bank’s lending practices had changed. even though he had been paying his loans as agreed and on time, he would need a new lender.

Lynch said he turned to the federal Small Business Administration since his original loan had been what is called an SBA ”7(a)” loan, often used for general working capital for expansion or liquidity.

”The SBA was extremely helpful in telling our story to local lenders. Huntington and Key put together a proposal. we had a very positive experience, other than we had to look for a new lender during a time when there was an economic downturn and just like any other manufacturer, we were struggling to keep up and keep our people employed,” he said.

Lynch ended up refinancing his real estate loan, a commercial line of credit and a new line for about $1.5 million through an SBA loan with KeyBank. in the end, Doyle Systems was able to cut its monthly principal
and interest obligations by more than half with the refinanced SBA loan. ”In a downturn, that was a good thing to happen,” he said.

The overall numbers of the SBA’s primary loan programs — the 7(a) and 504 loans, which are used to purchase equipment or acquire real estate — as well as conventional lending for banks were lower for the 2009 fiscal year compared to 2008 because of the recession. But bankers and SBA officials said SBA lending and demand have still been brisk since the fiscal year ended in September.

That’s in part because of enhancements to the SBA loans, including the 7(a) program, from the government’s stimulus program known as the Federal Recovery Act. For the 7(a) loan program, the act, which went into effect last February, increased the federal government’s guarantees of the loans to 90 percent from 75 percent and waived fees for business owners.

According to rankings compiled by Crain’s Cleveland Business of Northeast Ohio’s top SBA 7(a) lenders, Huntington Bank was the top lender, processing 195 loans worth $24.3 million in 2009 compared to 242 loans worth $28.6 million in 2008. Second was KeyBank with 62 loans worth $12.7 million for 2009 compared to 64 loans in 2008 worth $7.5 million.

Small-business lending has been down in part because demand was down from business owners as they dealt with marketplace uncertainty, said Steve Shatrich, senior vice president of business banking for KeyBank.

Total Cleveland District SBA 7(a) and 504 loans from 2008 to 2009 dropped 34 percent, from 1,312 loans to 864 loans for the fiscal year that ended Sept. 30, said Gil Goldberg, SBA coordinator for the Cleveland district, which covers the northern 28 counties of Ohio.

But Goldberg said a key number is the 48 percent increase in those SBA loans by lenders since October over the previous year. While the 48 percent increase is compared to a time period before the Recovery Act went into effect, Goldberg said he believes the year will end 25 to 30 percent ahead of the previous year.

”That’s still significant. I think we’ve managed to do a good job of reversing banking DNA. Bankers don’t like to lend into a recession,” Goldberg said.

A study released last week by U.S. Senate candidate Lee Fisher showed that total loans to businesses across Ohio through the SBA programs have dropped nearly 34 percent, from $604 million in 2006 to $400 million in 2009. in Akron, Fisher said, small business owners saw loans drop from $14 million in 2006 to $7 million last year.

The federal enhancements have been helpful in inducing banks to lend, Goldberg said.

Goldberg said the SBA’s ”call volume” and loans have been up since June. the SBA has gone from doing 40 to 60 loans a month to 80 to 100 a month, he said. There was a small time frame in November when the funding ran out for the SBA enhancements and loan activity dropped off, but it bounced up again after Congress reapproved funding through February.

Recently, President Barack Obama requested that Congress extend and bump up the SBA loan benefits beyond February to continue to boost small-business owners. among the proposed increases is the line of credit limit for ”express loans” — which Goldberg said is about 60 percent of what his district does — to $1 million from $350,000. also, the president asked Congress to increase the maximum loan for the 7(a) program to $5 million from $2 million.

The existing enhancements have allowed banks such as Huntington ”to take a little more risk than what you might otherwise be taking,” said Craig Street, Huntington national director of SBA lending. ”In this recent credit environment, that has become a very, very big deal.

”Enhanced guarantees enable the bank to make more risk. what dimension [of risk] may vary from one bank to another. it allows us to offer higher leverage on any project,” he said.

Said Julie Ann Sweet, vice president and SBA sales manager for KeyBank: ”It’s one part of the stimulus act that is really working. We’re seeing immediate results.”

An SBA loan helped Tom Zgonc and his wife, Phyllis, qualify for a $300,000 loan through Huntington to buy two Subway franchises in Macedonia and Sagamore Hills last year.

Zgonc said he and his wife were looking to diversify their business investments beyond a small call-center company they operate that mainly promotes newspapers. ”It appeared to me ahead of time that my best shot would be an SBA loan because they guaranteed a portion of the loan. I thought that ought to help,” Tom Zgonc said.

It was Zgonc’s first time getting an SBA loan, so he said he had nothing to compare it to, but he credited his banker with leading him through the process.

Shatrich of KeyBank said there’s been a perception among business owners that an SBA loan might be only for customers who couldn’t get credit, but that’s far from the truth.

”SBA may have more favorable terms and structures and conditions than sometimes a conventional loan can offer. I would encourage anyone to look at conventional and SBA loans side by side to see which one makes the most sense,” he said.

Sweet, of KeyBank, said historically there also was overwhelming paperwork and fear that the government is involved in the process.

”Key and Huntington are preferred lenders, so most of the stuff we’re handling in house. [The government] is not seeing the [business owner's financial] numbers,” she said. ”It’s not what it was 10 years ago. People are somewhat afraid of it and I don’t think they should be.”

Lynch, owner of Doyle Systems, said there was a fair amount of paperwork, but he thought the process was worth it. Lynch said when he did an SBA loan in 2004, his loan fees were about $50,000.

This time, the fees were waived and the guarantee was higher.

”If we were willing to go through all the paperwork, which was no problem, it was a no-brainer,” he said. ”I still think it’s attractive. this was very timely because it was at a time when it was more difficult to make loans.”

Betty Lin-Fisher can be reached at
330-996-3724 or blinfisher@
thebeaconjournal.com.