Increase in SBA/NJEDA-backed loans – New Jersey Business Magazine
Banking executives discuss the benefits of credit products from the US Small Business Administration and the New Jersey Economic Development Authority.
By Anthony Vecchione, co-author on November 10, 2022
Banks in New Jersey are seeing strong demand for US Small Business Administration (SBA) and New Jersey Economic Development Authority (NJEDA) loans compared to the height of the COVID-19 pandemic.
“COVID hit and we switched to Paycheck Protection Program loans for a couple of years,” said Chris Kneer, first senior vice president division manager, SBA Lending for Valley Bank. “Now that we’ve got that under control, we’re back to building the SBA’s 7(a) program.
Industry experts say that participating in SBA and NJEDA loan programs is a win-win for banks.
Kneer claims that participating in an SBA-backed loan is an opportunity for banks to provide capital in ways other than standard lending products.
“It’s about access to capital for our borrowers and prospects,” he says. “These are [businesses] who for whatever reason are either not conventional customers or do not qualify for conventional financing.”
Thomas Pretty, Head of SBA Lending at TD Bank, comments: “Allow SBA loans [our] Bank to offer longer terms, and unlike many SBA lenders [we] can offer long-term fixed interest rates, which are particularly desirable in a rising interest rate environment.”
The SBA 7(a) loan program provides financial assistance to small businesses with special needs. This is a good option when real estate is part of a business purchase, but the loan can also be used for: Short and long-term working capital: refinancing current business debt; or purchase of furniture, fixtures and fittings.
According to the SBA, the maximum loan amount for a 7(a) loan is $5 million. Key eligibility criteria are based on what the company does to get its income, its credit history, and where the company operates.
Guiseppe Mastroeli, Executive Vice President, Business Banking Market Manager, M&T Bank, says the SBA program allows M&T to support more small businesses because the SBA guarantee mitigates risk. “By leveraging the SBA and partnering with local Community Development Centers (CDC), we can extend more lending to small businesses in the communities where we live and serve,” he says.
According to Pretty, SBA 7(a) loans are a great way to buy an existing business, start a business, buy a building or equipment, or refinance existing debt with longer terms and less money. Additionally, he says there will be no SBA origination fee for SBA loans under $500,000 in 2023.
In the meantime, SBA 504 loans are a great way to buy a building or equipment for a business with less money and up to 25-year payback and terms, he continues.
Meanwhile, the Certified Development Companies (CDC)/504 Loan Program provides long-term, fixed-rate financing for key property, plant and equipment that fuels business growth and job creation.
Valley’s Kneer says participation in these programs gives borrowers access to funds they might not otherwise have to grow their business.
“It also gives them the opportunity to build a relationship with a great bank,” he continues. “Many of our customers can start with an SBA loan and it grows into a long-term relationship where they can later qualify for traditional products.”
He says many of Valley’s SBA customers are new bank customers. “It’s an opportunity to tell them more about what we do, and since Valley is headquartered in New Jersey, it’s a perfect fit.”
According to Martin P. Melilli, Market President, Central New Jersey, TD Bank, “The benefits for TD Bank are that we can offer our customers and local business owners a very good alternative to traditional financing that in some cases has a lower interest rate and has a longer term. Without the programs of SBA or NJEDA, some business owners might not have been able to get traditional funding.”
NJEDA’s Premier Lender Program enables participating banks to extend loans at a higher loan-to-value ratio [ratios] allow as standard loan products due to NJEDA involvement in certain projects.
Under the Premier Lender program, NJEDA can provide the following loan participations/guarantees and line of credit guarantees:
- Up to 50% of the bank loan amount for loans in kind; maximum NJEDA participation of $2,000,000; maximum NJEDA guarantee of $1,500,000; total NJEDA commitment must not exceed $2,750,000.
- Up to 50% of the bank loan amount for working capital loans; maximum NJEDA participation of $750,000; maximum NJEDA guarantee of $1,500,000; Total NJEDA commitment must not exceed $2,250,000.
- Guarantee of up to 50% of the bank’s credit line; not exceed $750,000
Valley’s Kneer says 2022 will be a good year as credit expands. “We’re keeping a close eye on where the economy is going and making sure we talk to our borrowers about the different challenges that are there,” he says.
For the future, the banks in New Jersey are expecting a positive lending business next year.
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