Small Business Credit Loosens Up
Written by Marilyn Bowden on May 23, 2013
By Marilyn Bowden
Growing a small business requires access to credit, and lending is not yet not at pre-recession standards. But the market provides some less orthodox solutions, and local entrepreneurs are finding ways to thrive.
Defining what a small business is can be tricky. The US Small Business Administration, commonly called the SBA, assigns different criteria to each of hundreds of business types; the number of employees fluctuates from a maximum of 500 to three times that in some instances.
Even a 500-employee ceiling exceeds the size of most Miami-Dade businesses, said Eliot Abbott, a partner in the law firm Hinshaw and Culbertson with a wide range of entrepreneurial clients.
"To me, by South Florida standards, it’s 25 employees or less," he said. "In that range, if you are relatively new to the marketplace, credit is still ridiculously tight.
"For those in business for five or more years with good credit, banks are loosening up, particularly if it is secured lending, you are a customer of the bank and you’re in a business they are comfortable with, because they can’t sit on the money forever and never make a loan."
For Stonegate Bank, a boutique private bank, that comfort level implies an enterprise somewhat larger than Mr. Abbott’s definition of "small business."
"Our sweet spot is in the $3 million to $5 million range," said Market President Erin Knight.
However, she said, in general, local banks generated a lot of loan activity in fourth quarter 2012 due to uncertainty surrounding the fiscal cliff.
Lending practices depend to a significant extent upon bank regulators, and Ms. Knight said she doesn’t see those regulations relaxing any time soon.
"Given what we’ve been through in the past several years," she said, "there’s not a lot of will in Congress to ease up on bank regulations.
"It’s a new world of financing for small business. Companies have learned how to operate with fewer employees and more efficiency, so those still left are stronger than they were five years ago."
SBA-backed lending is on the rise, said SBA South Florida District Director Francisco "Pancho" Marrero. So far this fiscal year, the numbers are ahead of last year.
"One of the reasons for this is the revised and simplified application process for SBA’s Small Loan Advantage program," he said. In that program, he said, the number of approved loans during the first six months of this year is nearly triple the volume for all of fiscal 2012.
"Another factor contributing to this increase in lending that will likely help for the next five years is the recovery of the housing market," Mr. Marrero said. "Small business owners are slowly regaining equity in homes that can be used as collateral.
"We also expect to see more increases in Export and Foreign Trade loans as South Florida port facilities are improved and railroad lines expanded."
However, although the local office has drawn many new lenders to SBA loan programs, he said, "without the larger banks that wrote many SBA-backed loans before the economic downturn, we may not see a return to the lending volume we had before 2009."
In response to the scarcity of bank loans, some nontraditional sources of capital are coming to the fore.
"I’m seeing manufacturers extending credit to distributors beyond 30 days to as long as 90 days," Mr. Abbott said. "They view credit differently than banks do.
"Equity players are investing in growing companies, either as equity or mezzanine debts, and there are some big niches for that.
"Also, there’s a huge population of noncitizens who live here and have trouble getting US bank loans now. Those players get money from other banks."
In general, he said, the economy, even in the non-real estate world, is coming back.
"It is not roaring," Mr. Abbott said, "but there is more optimism among small business owners, and the legal work I am doing for them — new contracts, new financing, even a couple of employment agreements for upper-level management — are consistent with growth."To read the entire issue of Miami Today online, subscribe to e-MIAMI TODAY, an exact digital replica of the printed edition.