Advocates Criticize SBA Lending Pattern in Inner City.

The Los Angeles district office of the U.S. Small Business Administration once again guaranteed the greatest aggregate loan amount among the 70 SBA offices nationwide for the year ended Sept. 30, 1999.

So why are some L.A. inner-city advocates expressing concern?

It's because the average L.A. SBA loan amount grew to $289,500 in fiscal 1999, an 11.5 percent increase from the prior year. And since inner-city businesses tend to want smaller loans, some community activists argue that the banks may once again be shying away from inner-city businesses.

"The businesses in low-income communities are smaller, so the loan needs are smaller," said Alan Fisher, executive director of San Franciso-based California Reinvestment Committee, a non-profit organization that monitors bank lending to minority and low-income communities. "If they are doing fewer loans that are larger, then they are serving fewer needs."

The 1999 numbers hardly represent a trend. While the average L.A. districtwide SBA loan amount last year was up from fiscal '98, it was still lower than the 1997 average loan amount of $312,800.

But of the top 10 SBA lenders in L.A. County, half reported making fewer SBA loans in 1999, according to a Business Journal survey.

Bank of America, by far the largest SBA lender in the county, made 11 percent fewer SBA loans in L.A. last year, but its average loan amount rose to $172,400 from $138,700 in fiscal '98.

"If the biggest bank in California is doing this, then our concern would be that smaller banks would see this as a trend to follow," Fisher said.

Bankers downplayed the numbers as a statistical anomaly, attributing the difference to such factors as the increasing demand for real estate loans, which skewed the amount of individual loans higher as land prices rose.

"Real estate lending, which are larger deals, really picked up this year," said J. Han Park, senior vice president and head of the SBA lending program at Wilshire State Bank, the third largest SBA lender in the county.

(Wilshire State Bank is among those lenders that made fewer L.A. SBA loans in fiscal 1999, but for larger amounts, on average.)

SBA officials are sensitive to the rise in the average L.A. loan amount in 1999, and acknowledged that convincing banks to lend in poorer neighborhoods remains a challenge.

"I think that it is an issue," said Alberto Alvarado, district director for the L.A. office. "We have to re-emphasize that our mission is to lend to individuals and businesses that might not otherwise be able to access (capital.)"

He said his office continually presses the banks it does business with to be more visible in inner-city communities, and to resist the impulse simply to lend to minorities who fit a mainstream profile.

"It's very easy to lend to the African American who is a CPA with an MBA from Harvard," Alvarado said. "More challenging is (lending to) the small operations that we frequent up and down the boulevards of the city."

Some charge that banks aren't doing enough to find creative ways to address such stumbling blocks.

"No one's checking SBA results with the SBA mission," said John Bryant, head of Operation Hope Inc., a non-profit community investment organization focusing on the inner city. "Bank (SBA) portfolios are growing, but they aren't growing in the area the program was intended to serve."

Bryant praised the SBA for making it possible for certain loans to be financed that wouldn't otherwise get done.

But he argued that banks tend to favor larger SBA loans because they are easier to bundle for resale in the secondary markets. Meanwhile, the smaller loans sought by many inner-city businesses are being ignored because they're harder to bundle.

Community activists also point out that, since there are so few banks in the inner city, the prospect of many minority business owners actually applying for an SBA loan isn't great. Operation Hope released a study last year showing that 77 percent of minority-owned businesses in South Central L.A. didn't apply to banks for lines of credit or loans, and 75 percent of those said they didn't do so because they believed their applications would be denied.

Nor were these shaky companies. Of the firms surveyed, 93 percent had been in business for three years or more, and 75 percent reported annual sales of $100,000 or more.

Alvarado is sympathetic, and said the SBA works to take banks into communities where they might not otherwise go, and to persuade them that collateral isn't the only measuring stick for an inner-city loan. But he admits that it is sometimes a struggle.

"We're not necessarily trying to get banks to take on more risk, but we are trying to get them to take a better look (at loan) and don't stop and say, 'We can't, there's no collateral,'" he said. "There's a lot more that needs to be done."

                      Average SBA Loan Amounts Rising
    Average size of SBA loans made by L.A. County's top 10 SBA lenders.
Lender                      1999 average 1998 average
Bank of America               $172,400     $138,700
U.S. Bank                      428,500      422,600
Wilshire State Bank            304,700      264,000
California Statewide C.D.C.    511,000      470,900
Hanmi Bank                     468,100      301,200
City National Bank             476,100      490,500
Nara Bank                      396,200      328,900
Western Security Bank          483,800      464,100
First Continental Bank         506,600      378,600
United Commercial Bank         300,000      310,500
Source: Business Journal Research