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A capital idea: Small Business Administration programs help make loans possible.

Last Modified: Sunday, November 15, 2015 at 11:08 p.m.

Nikunj Shah purchased his first motel in August, a deal that may not have been possible without a popular federal loan program.

Shah paid $2.4 million for the 47-unit Super 8 motel in Bradenton, financed with a $2.19 million loan from Sarasota’s Insignia Bank through the U.S. Small Business Administration.

The SBA-guaranteed loan came with a lower down payment and a longer term. It also was approved for a first-time buyer that conventional commercial lenders often reject.

“With the SBA loan, you can get a loan approved with a 15 to 20 percent down payment, compared with a commercial loan with a bank you might have to put down 25 to 35 percent,” Shah said. “Commercial banks will only amortize for 10 or 15 years, where the SBA will amortize for 20 to 25 years, so the mortgage payment is much less.”

The SBA also works with first-time buyers although, like Shah, it helps to have a previous track record of business experience.

Insignia Bank CEO Charlie Brown has been making small-business loans through the SBA for decades, and his bank was the top dollar producer for loans with the SBA among lenders headquartered in Southwest Florida.

It issued $4.5 million in SBA loans in the recently completed fiscal year, ranking the community bank in the top 35 percent of all Florida banks for SBA lending.

“We continue to see opportunities in the market for SBA loans, said Brown, the bank’s chairman and chief executive. “Where other banks have become concentrated with certain types of real estate loans and are pulling back, Insignia, with the use of the SBA program and its strong capital, continues to lend.”

Brown learned SBA lending at his former job at Charlotte State Bank & Trust in Port Charlotte, which one year ranked No. 2 in Florida in SBA loans.

“We can lend more than we normally would because of the SBA guarantee,” Brown said. “We try to use it only for when collateral may be a little tighter. The rest of the transaction still has to make sense from a cash flow, character and condition in industry standpoint.”

Lenders issued $111.1 million in SBA loans in Sarasota, Manatee and Charlotte counties in fiscal year 2015, up 18 percent from the $94.2 million the previous year.

The number of loans to new and existing businesses in the region in the fiscal year ended Sept. 30 increased by 36 to a total of 180, according to SBA data for the 12-month period ended Sept. 30.

The importance of SBA loans

SBA lending programs encourage bankers to approve more small-business loans by allowing the government to shoulder some of the default risk. Owners of small businesses like the loans because they carry longer terms and lower interest rates than most other loan sources. Borrowers also are able to qualify for SBA loans if they don’t have enough collateral to qualify under a lender’s usual terms.

Plus, other sources of loans often are unavailable.

Many banks tightened the reins on commercial lending after being battered by soured business loans during the real estate downturn. Speculative loans to developers played a key role in the demise in a number of community banks in Southwest Florida and across the state.

The SBA’s 24-county South Florida district, which includes Sarasota, Manatee and Charlotte, set a record for lending in the recent year, with 2,417 loans.

“We did nearly $1.2 billion in loan guarantees for small businesses last year,” said Althea Harris, spokeswoman for the district. “That’s better than our best year, fiscal 2007, before the recession when we did just under $900 million in loan guarantees.”

Nationwide, lending in the SBA’s flagship 7(a) program also broke records, with 63,000 loans totaling $23.6 billion for the year. That was an increase of 22 percent in number of loans and 23 percent in total dollar volume.

Conventional loans a challenge

“This level of program activity demonstrates that access to capital through conventional sources remains a challenge for small businesses,” the SBA said.

In Sarasota County, the SBA reported 89 loans for $57.4 million. Last year SBA lenders completed 69 loans for $39.7 million.

Manatee produced 64 loans totaling $38.2 million, compared with 58 loans totaling $38.0 million in fiscal 2014.

Charlotte posted a small decline in dollar volume, with 27 loans for $15.5 million, compared with 17 loans for $16.5 million.

In the South Florida region, the area south of Orlando, the number of loans in the 504 program which provides finances for major fixed assets like equipment or real estate was down by nearly 7 percent. But loans in the 7a program the most popular one, which finances everything from startup businesses to long-term working capital jumped 55 percent over the year.

7a program loans grow

Harris said 504 lending in the district has trended lower because of the competition that certified development companies, known as CDCs, are getting from the traditional 7a lenders, “who are encroaching on the real estate transactions that traditionally have been left for the CDCs.” In contrast, lending in the 7a program continues to grow. CDCs are nonprofit corporations, certified and regulated by the SBA, that work with participating lenders to provide financing to small businesses.

Shah, the motel buyer, said the SBA loan process does taken longer than direct financing through a bank. His loan took about three months to complete, but he credits Insignia and the SBA for getting it done.

He says he would probably not be a motel owner today without the program.

“Anyone buying a business for the first time, the best way is the SBA route,” he said.

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