SBA loan program swamped

President Obama’s stimulus package meant little to Linda Russell until she went to borrow money at OneCalifornia Bank in Oakland for her school photography business, Mugshot.

But when her $300,000 loan was quickly approved she discovered what the stimulus is all about.

“I think the Recovery Act is working,” said the San Rafael based photographer and business entrepreneur who plans to expand with an online presence and possibly franchise the idea to other parts of the country.

Russell is not alone. Almost 100 days after President Obama signed the American Recovery and Reinvestment Act of 2009, changes, however small, have been trickling down from Capitol Hill to Oakland’s small business owners.

And this month, another new loan program got underway. America’s Recovery Capital Loan Program will provide 10,000 deferred-payment loans of up to $35,000 to small businesses struggling to stay afloat.  The SBA gives banks a 100 percent guarantee on the loans and the owners can use the money to pay current debt.

“We were inundated with phone calls,” said Robert Gebauer, senior vice president and the SBA’s division manager at OneCalifornia Bank in Oakland, one of 12 Oakland banks with an SBA loan program.

Gebauer said that since Obama signed the Recovery Act, seven loans have been processed and 25 loans are currently in the pipeline. However, these only represent businesses that actually qualified. “Applicants for SBA loans increased by 200 percent,” Gebauer said.

Under the Recovery Act, the SBA raised its guarantee on the $375 million it will hand out from 75 percent to 90 percent. In addition, it waved the loan fees that the borrower usually pays. As a result, the SBA underwrote 300 new loans, totaling $85 million in the Bay Area.

The director of the SBA in Sacramento said that the flood of people applying for SBA loans is so thick that they cannot process the applications fast enough,  said Robert A. Borden, the regional communications director at SBA.

Borden said that the applications have increased by 25 percent and as a result, they’ve hired ten new loan processing officers to meet the demand in Sacramento.

Mark Quinn, district manager of SBA, explained why there’s been an upsurge.

“Banks are more willing to lend and business owners are more confident in borrowing,” said Quinn.

The SBA has also expanded eligibility to more small businesses broadening the size standards for the 7(a) loan, the most basic loan program.  More than 70,000 additional small business are now eligible for the loan, including auto and RV dealerships and auto industry suppliers.

Stakes and risk for the banks have become lower, but it was hard for Russell to decide on an SBA loan. “I have always been self-financing. And I was scared about borrowing a huge chunk of money,” Russell said.  Then, one day when she was in Washington, she said she realized that “sometimes you have to act outside of your comfort zone to make a change.”

Lead image: Linda Russell benefited from SBA loan for her school photography business.