New Jersey banks are seeing strong demand for U.S. Small Business Administration (SBA) and New Jersey Economic Development Authority (NJEDA) loans when compared to the height of the COVID-19 pandemic.
“COVID hit and we pivoted to Paycheck Protection Program loans for a couple of years,” says Chris Kneer, first senior vice president division manager, SBA lending for Valley Bank. “Now that we have that under our belt, we are back to building up the SBA’s 7(a) program.
Industry experts say that participation in SBA and NJEDA lending programs are a win-win for banks.
Kneer asserts that participating in an SBA-backed loan is an opportunity for banks to provide capital in a different way than the standard lending products.
“It is all about access to capital for our borrowers and prospects,” he says. “These are [businesses] that, for some reason, either are not conventional customers, or they do not qualify for conventional financing.”
Thomas Pretty, head of SBA lending at TD Bank, comments, “SBA loans allow [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 help for small businesses with special requirements. 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 current business debt; or purchasing furniture, fixtures, and supplies.
According to the SBA, the maximum loan amount for a 7(a) loan is $5 million. Key eligibility factors are based on what the business does to receive its income, its credit history, and where the business operates.
Giuseppe Mastroeli, executive vice president, business banking market manager, M&T Bank, says the SBA program allows M&T to assist more small businesses because the SBA guarantee mitigates risk. “By leveraging the SBA and partnering with local Community Development Centers (CDC), we can provide more lending 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 down. Additionally, he says that there is no SBA origination fee on SBA loans under $500,000 in 2023.
Meanwhile, SBA 504 loans are a great way to buy a building or equipment for a business with less money down and up to 25-year amortization and terms, he continues.
Additionally, the Certified Development Companies (CDC)/504 Loan Program provides long-term, fixed rate financing for major fixed assets that promote business growth and job creation.
Valley’s Kneer says that participation in these programs for borrowers means access to funds that they may not yet otherwise have to grow their business.
“It also gives them the opportunity to build a relationship with a great bank,” he continues. “Many of our customers may start off with an SBA loan and it grows into a long-term relationship where they are able to qualify for conventional products down the road.”
He says that a lot of Valley’s SBA customers are new bank customers. “It is an opportunity to tell them more about what we do, and with Valley being headquartered in New Jersey, it is a perfect fit.”
According to Martin P. Melilli, market president, Central New Jersey, TD Bank, “The benefits to TD Bank are that we are able to offer our customers and local business owners a very good alternative to traditional financing, which, in some cases, is at a lower interest rate and for a longer term. Without the SBA or NJEDA’s programs, some business owners may not have been able to obtain traditional financing.”
The NJEDA’s Premier Lender Program allows participating banks to lend at higher loan to value [ratios] on certain projects than standard loan products permit, due to NJEDA participation.
Under the Premier Lender Program, the NJEDA can provide the following loan participations/guarantees and line of credit guarantees:
Valley’s Kneer says that 2022 will end up as a good year with loan volume increasing. “We are keeping a close eye on where the economy is going and making sure that we are talking to our borrowers about the different challenges that are out there,” he says.
Going forward, New Jersey banks expect next year’s loan activity to be positive.
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