By CRAIG FREILICH

The amount of money lent in government small business loans in St. Lawrence County jumped by more than 15 times in 2014 over 2013.

Simplified U.S. Small Business Administration (SBA) loan procedures, and not an increase in local economic activity, is believed to be the main reason.

Ron Bacon, commercial banking officer at Community Bank, NA’s Potsdam branch, says the new SBA programs are making it easier for banks to approve small business loans.

“More banks are looking to utilize the SBA guarantee programs as a way to reduce loan risk,” Bacon said. “Given the state of the local economy, somewhat stagnant, flat,” the SBA guarantees make the loans somewhat easier to approve.

The U.S. Small Business Administration reported loans amounting to $3.8 million made in St. Lawrence County in 2014, compared with $246,500 in 2013.

Bernard Poprocki, Syracuse district director for the SBA, said while there were five loans to businesspeople in the county in 2013, that jumped to 15 in 2014, “certainly in the big picture of SBA lending, not a huge amount,” but several factors have gone into the increase last year, he said.

The SBA has reduced the paperwork necessary for SBA loans, and the SBA is backing the loans with their guarantee.

“And we’ve eliminated the guarantee fees on new SBA loans and the fees on the outstanding share of SBA loan guarantee, and that’s less expense for the borrower. This is a solid effort to market to lenders.”

“The typical SBA loan is used for startup ventures or ventures where there is very little equity, and inadequate collateral,” Bacon said. “ The SBA offers to mitigate the risk.

“And the SBA has made it easier to use their program with the reduced paperwork.

Bacon described a program called SBA Express, which only requires a one-page application from the borrower.

“The bank makes its own underwriting decisions. We don’t have to overwhelm the applicant with SBA paperwork,” and they don’t have to wait for the SBA, Bacon said. “It’s increasingly used by banks and the fee is fairly modest.” And he noted that the waiver of the guarantee fee on smaller loans is a worthwhile incentive.

‘Slight pickup’ in local economy

Bacon said he would not necessarily view the increase in SBA loans last year “as a sign of economic activity in the region.”

But he says he has seen “a slight pickup very recently. There might be a little more confidence in the economy,” after the uncertainty over Alcoa’s position in Massena “and the uncertainty last year over the effects of Obamacare.

“There was deferred loan demand due to that lack of confidence, but there have been more inquiries and applications in the last three or four months,” he said recently.

“There’s not much loan demand in general. We don’t see as many applications even for startups.

“I think we’ve viewed the historical use of SBA loans as inadequate, but from our bank’s perspective, we’re intending to utilize more of their program,” Bacon said.

SBA loans are now guaranteed up to 85 percent, and with the fee waiver, a borrower can save $2,550 that would usually be paid up front, Poprocki said, and that alone could be a deciding factor for a borrower.

Another factor in the increase in the number of loans in the county last year and their size is the effect of the federal government shutdown in October 2013, “which put us about a month behind. We cleaned out the pipeline of loans that were piling up ahead of the shutdown,” which accounts for some of the increase for 2014

“The reduction of fees and the reduction of paperwork – that’s what I would attribute most of this increase to.”

At the same time, SBA loan limits have gone up, from $2 million to $5 million.

“That also helped to skew the loan averages a bit, stemming from the larger average loan size, obviously, but also because it opens a whole market” in businesses that need a larger loan and can take advantage of the SBA terms.

As far as banks are concerned, Poprocki said, “loans of $150,000 and lower are harder to make to small businesses,” especially when you consider that the cost of administering the loan is probably the same for most any business loan. “It costs the same to do a $1 million loan as a $50,000 loan.” So a lender is “obviously looking to make larger loans” for a higher return on the same amount of expense in servicing the loan.

Local Banks Participating

Among the banks participating in SBA programs in the county last year were NBT Bank, First Niagara, and Community Bank, NA. Three banks participated in 2013 and nine in 2014.

The fact that “no one bank in St. Lawrence County is making the loans shows that there is competition among banks for the loans. That’s good for the borrowers, if the banks will compete on price or terms,” Poprocki said.

“Although SBA does not make direct loans to small business, the agency’s use of its guaranty authority enables commercial lenders to make loans to small businesses they would otherwise not have made,” the SBA’s Poprocki said.

“With the strong relationships we have with our lending partners, continued fee reductions through 2015 and streamlined application processes, we anticipate building on this past year’s momentum” so that more entrepreneurs “will use SBA financing to create jobs and invest in their businesses and communities,” Poprocki said.

Poprocki noted that the temporary fee waiver the SBA has been operating with will expire Sept. 30 unless Congress approves an extension.