Rise in SBA/NJEDA-backed loans – New Jersey Business Magazine

Economic development

Banking industry leaders discuss the benefits of small business loan products from the US Small Business Administration and the New Jersey Economic Development Authority.

New Jersey banks are seeing strong demand for loans from the US Small Business Administration (SBA) and New Jersey Economic Development Authority (NJEDA) from the height of the COVID-19 pandemic.

“COVID hit and we turned to Paycheck Protection Program loans for a few years,” says Chris Kneer, divisional senior vice president, SBA lending for Valley Bank. “Now that we have this under our belt, we are back to building the SBA 7(a) program.

Industry experts say participating in the SBA and NJEDA lending programs is a win-win situation for banks.

Kneer says participating in an SBA-backed loan is an opportunity for banks to provide capital in a way that’s different from standard loan products.

“It’s all 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 Loans at TD Bank, comments: “SBA loans enable [our] bank to offer longer terms and, unlike many SBA lenders, [we] can offer long-term fixed rates, which are particularly desirable in a rising interest rate environment.

The SBA’s 7(a) loan program includes financial assistance for 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 the business’s current debt; or the purchase of furniture, fixtures and supplies.

According to the SBA, the maximum loan amount for a 7(a) loan is $5 million. The main eligibility factors are based on what the business does to collect revenue, credit history, and where it does business.

Guiseppe Mastroeli, Executive Vice President, Corporate Banking Market Director, M&T Bank, says the SBA program allows M&T to help more small businesses because the SBA guarantee mitigates risk. “By leveraging the SBA and partnering with local Community Development Centers (CDCs), we can provide more loans to small businesses in the communities in which 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 using longer terms and less money. Additionally, he says there are no SBA origination fees on SBA loans below $500,000 in 2023.

Meanwhile, SBA 504 loans are a great way to buy a building or equipment for a business with less money and up to 25 years of amortization and term, he continues.

At the same time, the 504/Certified Development Company (CDC) loan program provides long-term, fixed-rate financing for major capital assets that support business growth and job creation.

Valley’s Kneer says participation in these programs for borrowers means access to funds they might not otherwise have to grow their business.

“It also gives them the opportunity to build a relationship with a major bank,” he continues. “Many of our clients can start with an SBA loan and that turns into a long-term relationship where they can qualify for conventional products later.”

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 with Valley’s New Jersey headquarters, 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 are able to offer our customers and local business owners a great alternative to traditional financing, which in some cases is at a lower interest rate and longer term. Without the SBA or NJEDA programs, some business owners may not have been able to obtain traditional financing.

NJEDA’s Premier Lender Program allows participating banks to lend at a higher loan-to-value ratio [ratios] on some projects than standard lending products allow, due to NJEDA involvement.

Under the First Lender Program, NJEDA can provide the following loan participations/guarantees and line of credit guarantees:

  • Up to 50% of the bank loan amount for capital loans; NJEDA maximum participation of $2,000,000; NJEDA Maximum Guarantee of $1,500,000; NJEDA’s total exposure must not exceed $2,750,000.
  • Up to 50% of the bank loan amount for working capital loans; maximum NJEDA participation of $750,000; NJEDA Maximum Guarantee of $1,500,000; NJEDA’s total exposure must not exceed $2,250,000.
  • Guarantee up to 50% of the amount of the bank credit line; not exceed $750,000

Valley’s Kneer says 2022 will end as a good year with an increase in lending volume. “We’re watching the economy closely and making sure to talk to our borrowers about the various challenges that arise,” he says.

Looking ahead, New Jersey banks expect next year’s lending activity to be positive.

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