Clinton, NJ -- (ReleaseWire) -- 02/04/2010 -- The collapse of the subprime mortgage market that began in late 2006/early 2007 also saw a decline in the availability of U.S. Small Business Association (SBA) loans through community banks. For entrepreneurs and would-be small business owners, who were seeking career changes or striking out on their own because of recession-related layoffs, the inability to secure an SBA loan at their local community bank was like adding “insult to injury.”
With the first stimulus bill (American Recovery and Reinvestment Act of 2009), the SBA received $730 million from the government to readdress lending to small businesses through SBA-participating lenders, which include local community banks throughout the U.S. Unity Bank, headquartered in Clinton, NJ, has a commercial loan department that is responsible for making SBA loans. Additional funding, granted to the SBA in December 2009, supported an additional $4.5 billion in small business lending, along with a 90% guaranty and reduced fees on SBA loans.
Unity Bank’s Senior Vice President/Commercial Lending Officer, Michael Downes, stated, “The economic stimulus package has been a boon to banks and small business owners who have been struggling to get by or even to stay open throughout the recession. Several new provisions of SBA-backed business loans are extremely attractive to both lenders and borrowers, allowing both to fully take advantage of favorable conditions in the small business lending market.”
While the SBA does not actually lend the money to small businesses, it does guarantee repayment of a certain percentage of the principal to the lending institution in cases where the borrower defaults on the loan. Previously, borrowers had to pay a guaranty fee (similar to points on a mortgage loan), on top of the loan principal and interest, in order to secure the loan. Depending on the size of the loan, this fee ranged between 1% and 3.5%, depending on the loan size. For example, the guaranty fee on a $1,000,000 was $26,500. The 2009 stimulus bill eliminated the guaranty fee on SBA loans, lifting a substantial burden on small business borrowers and encouraging their increased participation in the SBA loan application process and a higher likelihood of approval.
In addition, lenders concerns about small business borrower defaults, especially in a challenged economy, have been addressed by the SBA’s new 90% guaranteed principal repayment on defaulted loans, compared with pre-stimulus guarantees of 75% – 85%, depending on the size and terms of the loan.
According to Downes, “By eliminating the borrower guaranty fees and increasing the lender guaranteed repayment, the SBA has definitely made small business loans more attractive to both lenders and borrowers. Unity Bank was built on the SBA loan market, so we possess a great deal of history, knowledge, expertise and experience in helping our small business customers secure the funding they need to start and build their businesses. As a community bank that prides itself on building and nurturing personal relationships in the local towns we serve, we’re very pleased to be able to offer our business customers enhanced SBA loans at current lower interest rates.”
According to the SBA, loans to New Jersey small business owners increased by 44% during the first fiscal quarter of 2010 (October 1 – December 31, 2009), demonstrating a re-commitment to the financial needs of small businesses that are facing financial challenges.
Unity Bank has branches in Hunterdon, Middlesex, Somerset, Union and Warren counties in New Jersey, and Northampton County in Pennsylvania. The bank began as First Community Bank in 1991 with two branches and thirty employees. It now has over one hundred and sixty employees.
For more information about Unity Bank, call Rosemary Fellner at 800.618.BANK(2265), or visit http://www.unitybank.com.
Stimulus-Enhanced SBA Loans: More Available and More Affordable