Nail-biting time hits many small firms as SBA funding hangs up.

A Small Business Administration-guaranteed loan program -- which helped 1,000 businesses in three Southern California counties expand last year -- will soon run out of money unless the U.S. Senate approves a $1.5 billion funding increase.

At risk are the futures of 40 Los Angeles County businesses that now have paperwork in the approval process, as well as untold numbers of other businesses that will likely seek SBA loans in the months to come. SBA loans now being processed total $10 million.

Stephen Harwood, acting public information officer for the Los Angeles district office of the Small Business Administration, said he sees no slackening in applications because businesses want to take advantage of lower real estate prices and buy their own buildings.

"This would be an awful time not to (be able to) provide guarantees," Harwood said. A funding uncertainty would discourage many small businesses from expanding or purchasing their own buildings, he said.

Both houses of Congress have approved the concept of boosting SBA funding and approving a needed budget amendment to boost spending authority. The specific request for the funding boost is part of a broader amendment to an appropriations bill.

The bill has passed the House, and is currently pending before the Senate. But the Senate is not expected to act on the bill until after Congress comes back from its summer recess after Labor Day, sources said.

If the appropriations bill, in its present form, becomes law, as expected, the SBA's almost-exhausted $4.5 billion funding authority will be increased to $6 billion.

"Unless (within the next several days) the Senate passes the appropriations bill that has been approved by the House, the SBA loan-guarantee program will run out of money by mid-August," said Tony Wilkinson, president of the Stillwater, Okla.-based National Association for Government Guaranteed Lenders. The association, a privately funded group of 350 financial institutions, accounts for 75 percent of the SBA loans made throughout the United States, Wilkinson said.

Some 88.5 percent of California's 716,949 businesses were considered "small" (fewer than 500 employees) when the California Employment Development Department took its last statewide survey in 1988.

At that time, small businesses employed 50.3 percent of California's total workforce (including government workers), according to the state's Employment Development Department. The California EDD uses a different methodology than the U.S. Census Bureau, and will not finish its next statewide survey until the end of 1992.

The department does have more recent data on Los Angeles County, which shows that small businesses employ some two-thirds of the civilian workforce. That tallied 2.6 million workers at the end of 1990, the most recent figures available. That compared to 1.6 million workers in L.A. County big businesses (500 or more employees), according to the EDD.

Los Angeles business owners would be particularly hard hit by a funding interruption, Wilkinson said.

"Los Angeles banks (collectively) make more SBA loans than lenders in any other market," he said.

Many Los Angeles business owners are trying to take advantage of recession-deflated real estate prices and buy their own buildings, Wilkinson said. Too, many could see expansion plans dashed, he said.

From Oct. 1, 1991 to May 31 of this year, 736 Los Angeles County businesses borrowed $269.5 million through the SBA system, up 21 percent from the same period a year before. Unlike other lending programs, in which defaults have climbed, the SBA loan program's defaults have declined from 3.2 percent for the fiscal year ended Sept. 31, 1989 to 2.5 percent for fiscal 1990-91, Wilkinson said.

By comparison, 5.24 percent of the outstanding business loans made by California's 271 state-chartered banks are delinquent, said San Francisco-based California State Banking Department spokeswoman Nancy Badely.

On a broader scale, 831 businesses in the geographical area comprised of Los Angeles, Ventura and Santa Barbara counties borrowed $291.9 million through the SBA program from October 1, 1991 to June 30, 1992 (the fiscal year to date).

That represented a 20 percent increase in dollar terms from $215.4 million for the same nine-month period a year earlier, and a 15.9 percent increase in loan volume from 717, said Tom R. MacKenzie, assistant regional administrator of public communications for the San Francisco-based SBA regional office.

Los Angeles SBA lenders appear fairly sanguine about the potential impact of a hangup in SBA funding.

Gerold Morita, president of Paramount-based Mechanics National Bank, said an SBA funding gap could interrupt loans in progress. For the nine months ended June 30, 1991, Mechanics National made 103 SBA loans totaling $29.7 million.

Robert Coleman, chief operating officer for Los Angeles-based Government Funding, an SBA lender that makes loans but doesn't take deposits, said he isn't worried.

"The SBA has never run out of money in the 12 years Government Funding has been in business. At worst, there may be a lag of a few weeks between the time the last of the money is lent and the Senate passes the $6 billion ceiling," Coleman said. His company had finalized 88 SBA loans totaling $36 million in Los Angeles from Jan. 1 through July 22 of this year.

Craig Isom, a partner in accounting firm Arthur Andersen & Co.'s San Fernando Valley-based enterprise group, isn't worried about a long-term interruption of SBA guarantees but offers a caveat to its success rating.

"The default rate has gone down, but the lenders are so strict that the only people who can qualify for a loan are those who don't really need one," he groused.

"This isn't the first time funding for the SBA program has been threatened," Isom said. During the Reagan administration, similar funding gaps appeared imminent but Congress always came through, he added.