Loans for Utah small businesses are halted

By Bob Mims
The Salt Lake Tribune

The U.S. Small Business Administration's abrupt suspension of its most popular loan-guarantee program has stirred the ire of entrepreneurs and lenders alike, with both the agency and the Bush administration taking the hits.
   
The SBA blames Congress, which continues to debate and delay approval of long-overdue federal budgets. Instead, the SBA has operated under a continuing resolution that provided $3.3 billion meant to keep the Section 7(a) program going until Jan. 31.
   
Now, SBA Administrator Hector Barreto has ordered his staff not to approve any additional 7(a) loans.
   
The action, quietly initiated in a brief e-mail to SBA employees Tuesday, stunned and angered Howard Headlee, president of the Utah Bankers Association, along with other champions of startups and expanding small businesses dependent on the program.
   
"Without warning, the [SBA] has essentially thrown a wrench into the gears of Utah 's economic recovery," he said in a statement. "For Utah entrepreneurs to suddenly lose what had been a stable source of small business financing is nothing short of tragic."
   
In freezing the 7(a) program, Barreto said that "unprecedented demand" had exhausted the temporary funding weeks earlier than expected. Meanwhile, Congress has not acted on SBA's request for $470 million in emergency funds to get through the remainder of this month.
   
"We told them [weeks ago] this could happen. They know what they need to do, but even [the emergency funding] is just a short-term solution. What we really need is for the Senate to approve our budget," said Doug Heye, the SBA's Washington, D.C.-based press secretary.
   
Sen. Orrin Hatch, R-Utah, blamed Democrats for unnecessarily holding up approval of the omnibus spending bill that includes SBA funding.
   
"My office has been assured by the SBA that once the omnibus spending bill passes the Senate, the 7(a) loan program will begin again in earnest," Hatch said. "I will continue to work with leadership to see that the 7(a) loan program is up and running as soon as possible after the Senate reconvenes."
   
That will be Jan. 20.
   
Stanford Aderibigbe says he and his newly opened Royal Fashion store at 3955 S. Wasatch Blvd. will try to hang on, hoping a critical 7(a) loan he applied for will clear by then.
   
A 35-year-old immigrant entrepreneur from Nigeria , Aderibigbe has been in the United States eight years. He, his wife, Amy, and their three children opened their retail clothing store about a week ago, counting on their Zions Bank loan to see their business through its startup. Instead, with only the final stamp of approval needed, the money was locked in limbo by the SBA's halt.
   
"It is really sad for us. I don't know what is happening now. Do you know?" Aderibigbe asked. "This is the first time I have experienced anything like this."
   
Without the money, he will soon have to close. Three employees then will be without work, and he will be stuck with a five-year lease. "These things I don't want to think about," he said.
   
Aderibigbe's store is just one of thousands nationwide -- small businesses unable otherwise to obtain loans -- suddenly caught in the budget wars. Ultimately at stake is the SBA's request for $9.3 billion (up from $8.8 billion last year) to run the 7(a) program.
   
The loans, capped at $1 million with guarantees of up to 85 percent, can be used for a variety of purposes, including working capital, inventory, equipment purchases and real estate acquisitions.
   
"We're very hopeful this suspension is a temporary thing," said Stan Nakano, director of SBA's Utah district offices. "It has been a very successful program here. Last [fiscal] year, the Utah office guaranteed and approved 1,174 Section 7(a) loans for $192 million."
   
The program, which reached record district levels in fiscal 2003, is well on the way to another record performance in 2004 -- if too much time doesn't pass before 7(a) funding is replenished. Nakano said that for the first three months of the current fiscal year, which began Oct. 1, his office had approved 331 loans (amounts were unavailable) -- a 40 percent increase from the same period last year.
   
Headlee said that, on average, 75 Utah small-business operators receive 7(a) loans every month. "It is impossible to overstate the gravity of this situation," he added, noting that small businesses provide half the jobs in the state while contributing about $5 billion to its economy yearly.
   
The longer the suspension runs, the worse it will be for both borrowing businesses and the likes of Zions Bank, the state's leading 7(a) lender for 10 years running. In fiscal 2003, Zions handled 355, or 30 percent, of the program's loans with a combined value of $28 million.
   
"Bottom line, it's a big deal for both us and for Utah ," Zions spokesman Rob Brough said . "Small businesses make up such a big part of our economy here and they always will. . . . To cut off, even temporarily, this critical funding is a big deal."
   
In all, the suspension caught 70 of Zions 7(a) loans -- including Aderibigbe's -- "in the pipeline" to final approval, Brough said. "That's some $9 million being held up right now because of this."
   
Peter Corroon, president of the Vest Pocket Coalition, also feared his 200-strong association of locally owned businesses "will certainly be impacted" by the SBA's lending halt.
   
"The members I've talked to see this as just another blow by the administration at small business," he said. "We haven't seen a lot of favorable action for small business coming out of Washington lately."

bmims"at"sltrib.com

© 2004 Salt Lake Tribune

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