Feb. 08--SANTA CRUZ -- Three years after the worst of the recession, lending by the nation's largest banks to small businesses in Santa Cruz County has grown at a snail's pace, similar to the state as a whole, prompting the California Reinvestment Coalition to call on regulators to "allow banks to make good loans."
Alan Fisher, author of the coalition's report, found bank loans to California small businesses in 2012 were off 60 percent from 2007, before the economy crashed.
In Santa Cruz County, loans to businesses with annual revenue of less than $1 million totaled 2,440 in 2012, compared to 2,389 in 2009 and 7,237 in 2007.
Women and people of color owning a business found it difficult to get a loan guaranteed by the U.S. Small Business Administration. Only 14 percent of SBA loans were made to women, only 11 percent to Latinos, according to national statistics for fiscal 2013.
Credit needs of the smallest small businesses are being ignored, according to Fisher, noting the average SBA loan grew from $165,723 in 2007 to $498,971 in 2013.
In Santa Cruz County, banks made 5,441 business loans for less than $100,000 in 2012, compared to 17,696 in 2007 and 5,759 in 2009.
In low- and moderate-income areas of the county, banks made 1,170 loans in 2012 compared to 3,413 in 2007 and 1,019 in 2009.
Business owners have been turning to merchant cash advance firms, some of which take 25 to 30 percent of the borrower's credit card sales, charging the equivalent of 60 percent interest on an annual basis.
"Small businesses normally create two out of every three new jobs in our country but, without banks lending again, we won't see a strong recovery," said Fisher.
He analyzed loan data filed by the nation's largest banks with the Federal Financial Institutions Examination Council. As a result, his report did not include Santa Cruz County Bank, which made the most SBA loans in Santa Cruz County in 2012 and 2013, or Santa Cruz Community Credit Union, a significant SBA lender locally.
Fisher offered several remedies. He suggested regulators focus on the community credit need rather than compare a bank's small business lending to its peers. He urged the Consumer Financial Protection Bureau to write regulations required in the Wall Street Reform Act to collect small business loan data including race and gender and make it accessible to the public.
In Santa Cruz County, Wells Fargo made 972 small business loans in 2012 for less than $100,000. That was more than any other national bank, but down from 2,004 in 2009 and 2,630 in 2007.
Bank of America led the national banks in boosting loans to Santa Cruz County businesses with less than $1 million in revenue, from 882 in 2007 to 1,671 in 2012.
In that same category, loans to county businesses with less than $1 million in revenue, U.S. Bank reported increases from 69 in 2007 to 209 in 2012.
Lenders are wary of making long-term loans at fixed rates when interest rates, which have been at historic lows, are expected to rise.
Wages locally have been stagnant, consumer spending flat and many business owners have been, not surprisingly, cautious.
"We're still post-recession, still digging our way out," said Sandi Eason, Wells Fargo's business banking manager for Santa Cruz and Monterey counties, noting business owners have been cautious about borrowing. "But things are getting better."
She said her team posted a record year for business loans, SBA and conventional, in 2013, a year not covered by Fisher's study.
SBA loans of less than $150,000 are more affordable now, she noted, because the SBA is waiving guarantee fees, a policy that began in November.
Wells Fargo is stepping up its commitment, Eason said, by offering a SBA loan with a fixed interest rate and 25-year term, geared for business owners who want to stop paying rent and buy their building. It's more common for business owners to be offered a shorter term with a balloon payment that must be refinanced, a risky choice when interest rates are expected to rise.
Bank of America
Bank of America does not lend to startups, requiring a business to be in operation for two years and gross $250,000 in annual revenue.
However, "practice solution loans" can be tailored for doctors, lawyers, accountants and dentists who run their own business, according to Whitney Chen, Bank of America small business relationship specialist.
"We've actually expanded in last two years," she said, noting three small business teams are working in California.
Much of the work is done over the phone, with a toll free line, 866-953-2481, dedicated to small business inquiries rather than at brick-and-mortar branches.
For those seeking a loan of less than $25,000, Chen recommends a business credit card with no annual fee, no interest for the first seven months, and rates after that ranging from 11.24 to 21.24 percent.
Teri Charest, spokeswoman for U.S. Bank, said, "We have made a special emphasis on increasing the number of loans, focusing on increasing the number of smaller dollar loans we approve through our SBA Division."
Follow Sentinel reporter Jondi Gumz at Twitter.com/jondigumz
(c)2014 the Santa Cruz Sentinel (Scotts Valley, Calif.)
Visit the Santa Cruz Sentinel (Scotts Valley, Calif.) at www.santacruzsentinel.com
Distributed by MCT Information Services