August 1, 2013

Maine loan climate looking brighter

Banks and borrowers are gaining confidence as economic conditions improve, observers say.

By J. Craig Anderson
Staff Writer

Companies in Maine are borrowing more money this year through U.S. Small Business Administration loan programs to expand, another sign that the state's economy may be improving.

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James Santamore and Bernard McBean, chefs at Jimmy the Greek’s, prepare lunches at the Maine Mall restaurant. Owner Jim Albert, who started with his first Jimmy the Greek’s in Old Orchard Beach in 2008, used a 504 loan to open this South Portland location in 2011.

Carl D. Walsh/Staff Photographer

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A diner gets salad in the self-service bar outside Jimmy the Greek's kitchen recently.

Carl D. Walsh/Staff Photographer

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Maine is the only state in New England with an increase in the number and total value of SBA loans issued from a year earlier. Connecticut and Massachusetts show increases in the total value of loans.

The value of SBA loans issued in Maine in the first nine months of the federal fiscal year, which began Oct. 1, was about $63.3 million, a 24 percent increase from $51 for the same period in fiscal 2012.

Those figures do not include "microloans," which make up a small fraction of the dollars loaned. Microloans included, the value of all SBA loans issued in the first nine months of fiscal 2013 was $63.9 million.

SBA loans reflect only a small sample of overall small-business activity, but the growth is a positive sign, said Charles Colgan, professor of public policy and management at the University of Southern Maine's Muskie School of Public Service.

"It certainly is consistent with the general expectation that 2013 will be an improvement over 2012," Colgan said.

He said it's too soon to know whether the recent increase is part of a larger trend. The value of SBA loans issued in Maine declined by about 30 percent from 2010 to 2012.

"A great deal of the data that you could use to track the Maine economy has had a lot of ups and downs since the recession," Colgan said.

Banks in Maine are feeling more comfortable about lending to qualified small businesses, said Alden Turner, acting deputy district director for the SBA in Portland.

Following the recession, lenders became more reluctant to lend to small businesses after losing money on loans that went into default, Turner said. Now, banks and borrowers are regaining confidence.

"The lenders have money to lend, and they are actively looking for bankable deals," Turner said.

The administrator of the SBA, Karen Mills, is a Maine resident who has held the job since 2009. It has since been elevated to a Cabinet-level position. Mills plans to step down at the end of August.

Nationally, SBA lending is up about 7 percent, with $16.25 billion loaned from Oct. 1 to June 30, compared with $15.24 billion in the same period a year earlier. National figures do not include the value of microloans.

The total value of loans issued in New England in the nine-month period was $653.2 million, down 2.4 percent from $669.3 million in the same period a year earlier.

Not including microloans, 284 SBA loans were issued in Maine in the first nine months of fiscal 2013, up 18 percent from 241 in the same period a year earlier, according to the administration's latest figures.

With microloans included, 308 SBA loans were issued in the first nine months of fiscal 2013.

The biggest jump was in so-called 504 loans, used to purchase land, real estate and equipment. The value of those loans in Maine in the first nine months of the fiscal year was $22.3 million, up 46 percent from $15.3 million in the same period a year ago.

Jim Albert, owner of Jimmy the Greek's restaurants, said he used a 504 loan to open a second restaurant in South Portland in 2011, after his location in Old Orchard proved successful.

Albert said he used a traditional SBA loan, known as a 7(a) loan, to help finance the first Jimmy the Greek's location in 2008. That loan was difficult to obtain, he said.

"The (economic) climate was terrible," he said. "You could not get a bank to lend you money."

Albert said he was surprised at how much easier it was to get his recent 504 loan, given that the approval process still involved a federal agency.

"Usually, the government gets a bad rap," he said. "My bank's happy, I'm happy, and we've got business going."

Participation in the 504 loan program is recovering especially fast because it is a good deal for banks and borrowers, said Turner, the SBA official in Portland.

Normally, when a small business wants a loan to buy real estate or expensive equipment, the borrower must contribute 20 to 25 percent of the purchase price.

With a 504 loan, the borrower can contribute as little as 10 percent and the bank must contribute only 50 percent because a third party is involved in the underwriting process known as a certified development company.

Certified development companies are nonprofit organizations that underwrite the remaining 40 percent of the loans, assisted by SBA guarantees that their money will be covered by the federal government if any loans go into default.

Jim Maxwell is the 504 manager for Maine at Granite State Development Corp., by far the most active certified development company in the state. He said 504 loans offer other advantages to borrowers, such as a fixed interest rate on the SBA-guaranteed portion of the loan.

Most 504 loans are fully amortized, he said, which means they are paid off completely with regular payments throughout their term, usually 20 years. Conventional business loans often include large balloon payments at the end of the term, which can be as short as five years.

Once a 504 loan is approved, the certified development company sells bonds to investors to cover the federally guaranteed portion, Maxwell said. The investors are guaranteed to be repaid with interest over the term of the loan.

Maxwell said he has seen an increase of 25 to 50 percent in requests for 504 loans over the past two years.

He said Granite State Development, which is responsible for collecting on the SBA-guaranteed portion of 504 loans, is selective about applications.

"If you're making bad loans, you're going to spend all of your time servicing those loans," he said.

The 504 loan program is good for private lenders because they lose money through default only if the property or equipment purchased cannot be sold for at least 50 percent of its original value, said Paul Collins, vice president of Lewiston-based Androscoggin Savings Bank.

"We are at 50 percent loan to value, which is a great place to be," he said.

While small-business lending activity still lags the volume seen before the economic downturn, the SBA's Turner said that period was characterized by aggressive lending practices and too little due diligence.

"We probably shouldn't be going back to some of the things that were happening prior to the recession," he said.

J. Craig Anderson can be contacted at 791-6390 or at:


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Additional Photos

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A meal sits ready to be served in Jimmy the Greek's kitchen recently. The restaurant's owner used what's known as a 504 loan from the U.S. Small Business Administration to open its second location, at The Maine Mall, in 2011.

Carl D. Walsh/Staff Photographer


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