Small business loans are changing
Federal financial support for Arkansas small businesses changed last year as lenders decided to provide more dollars under the US Small Business Administration’s traditional guaranteed products.
SBA loans in the state “reflected lender uncertainty in fiscal 2021,” the agency said in a press release. However, banks and other lenders participating in SBA programs saw a 64% increase in secured loan programs for the fiscal year ending Sept. 30.
Overall, SBA lenders have made 330 loans worth $ 208.9 million to Arkansas small businesses under the agency’s traditional guaranteed programs. Specialty loan products, such as forgivable loans under the Paycheck Protection Program, have dominated federal loans since the pandemic began in March 2020. The Paycheck Protection Program Effort ended in May.
“The SBA continues to make significant progress in helping small businesses access much-needed capital in FY21, but there is still a long way to go,” said Edward Haddock, district manager of the Arkansas office. “Our direct loans and secured loans have supported thousands of jobs in Arkansas, providing essential capital for businesses affected by covid and those starting or growing.”
The agency’s 7a program, its most common loan vehicle, was the most popular traditional alternative for Arkansas borrowers. Although the number of loans increased slightly by 10, the dollar volume increased by 81% to approximately $ 201 million from fiscal year 2020.
Southern Bancorp Inc., which focuses on underserved and underbanked communities in Arkansas and Mississippi, was one of the top 7a lenders, offering $ 21.4 million to small businesses in Arkansas.
“Although the pandemic has hit almost every corner of the country to one extent or another, the impact has been particularly hard felt in many of Southern Bancorp’s target markets as the virus has exacerbated existing economic difficulties,” said Wednesday Darrin Williams, Managing Director of Southern Bancorp. .
The SBA said 7a loans were more popular last year because the agency added incentives that included eliminating borrower origination fees and ongoing service fees. Program 7a provides short- and long-term working capital, refinances existing debt, and can be used to purchase furniture, fixtures and supplies. Loans are capped at $ 5 million. More than 3,800 jobs were supported or created through the program during the year, the agency said.
Southern Bancorp’s improved incentives along with the 7a program enabled the lender “to quickly deploy funds to small businesses that were trying not only to start their business but also to keep their doors open,” said Williams. “We look forward to continuing to work with the SBA to use this program and others to continue to increase access to capital in financially underserved communities.”
A total of 25 state lenders and 51 institutions outside of Arkansas have provided 7a loans in the state. This disparity, the SBA said in the press release, indicates that “Arkansas has the opportunity to expand its small business lending and must compete to keep its loans at local institutions.”
Agency statistics showed that lending in underserved communities gained ground last year, reaching around 15.4% of total 7a loans, up from 6.5% in FY2020.
The SBA’s 504 loan program also resumed last year, exceeding $ 31.4 million in debenture financing, up 97% from 2020. The program provides long-term, fixed-rate financing for the main fixed assets that promote business expansion and job growth.
Microcredit, however, fell over the past year and signals that the gap in access to small dollar loans is widening, the agency said. Only 22 loans valued at $ 528,623 have been approved in Arkansas. This was down from the total loan value of over $ 2 million two years ago. Microcredits are capped at $ 50,000 and target start-ups and nonprofit daycares. The average microcredit in the state is $ 23,000.
Although the fiscal year is over, the SBA is still making funds available through its Economic Disaster Lending Program, which has provided Arkansas with $ 1.4 billion so far this year. The program ends on December 31.
Arkansas officials are promoting loans to help small businesses fight the ongoing pandemic. “These EIDL loans are essential in helping our small businesses float costs and stay open as they seek to bring revenues back to pre-Covid levels,” Haddock said.
Looking ahead to fiscal 2022, Haddock said the agency will continue to promote specialist covid loans as a defense against the pandemic.
“In times of economic uncertainty, the SBA guarantee has proven not only to reduce risks for the credit institution, but also to offer stability and flexibility to small businesses,” he added.
Outside of traditional core loan programs, Arkansas and national lenders have provided 61,701 paycheck protection program loans to small businesses in the state. The second round of PPP financing reached $ 1.75 billion in 2021.