SBA plays catch-up on business loan applications.

It clears backlog created when fund temporarily ran out

Small businesses were able to borrow money and live happily ever after.

That is essentially the outcome being reported in the aftermath of the Small Business Administration's main lending program running out of money in April and receiving a $175-million injection July 3, enough to guarantee $3.2 billion in loans. The backlog of applications created when the SBA coffers went dry has been cleared, borrowers are getting SBA-backed loans and there is enough money for the SBA to guarantee loans through fiscal year end, sources say.

The SBA ran out of money because the demand for loan guarantees nationwide, $380 million to fund $7 billion in loans, far exceeded the $191 million for $3.5 billion in loans that Congress had allotted to the program for the fiscal year ended Oct. 1.

More than half of the $175 million just allotted came from funds already appropriated for other SBA programs. Other portions were transferred from: the fund for the White House Conference for Small Business, a program held every four years; the Securities and Exchange Commission equipment purchase fund; the Foreign Broadcast Fund; and other federal programs, said Morris Van Asperen, senior vice president at Los Angeles-based National Bank of California.

The Los Angeles district office of the SBA, which serves Los Angeles, Ventura and Santa Barbara counties, had collected a backlog of 109 loan-guarantee packages from banks, $53 million worth, during the two months the SBA had no funds. All of these packages have been processed and approved since the SBA funding came back on line, said John Tumpak, a spokesman for the SBA's Los Angeles office.

The packages were processed and approved within a week of the money being available, Tumpak added. After the packages were approved and processed by the SBA, they were sent back to the banks, which disburse the loans.

The SBA has now processed and approved every SBA loan submitted by Paramount-based Mechanics National, said Jerry Morita, president of the bank's SBA division. The bank is now processing those loans for disbursement.

Likewise, American Pacific Bank has received the go-ahead from the SBA to give out SBA-guaranteed loans, said James Whitney, senior vice president and manager of the SBA division at the Sherman Oaks-based bank.

While the SBA wallet was empty, several banks pacified small-business customers by making "interim" or short-term loans. These types of loans were approved by, but not guaranteed by, the SBA. They were issued with the goal of being repaid, or refinanced, with SBA-guaranteed loans when the money became available, even if that meant waiting for the next fiscal year.

But with money in the SBA billfold, banks are refinancing those interim loans now. The Money Store Investment Corp.'s Encino office, for instance, made about half a dozen interim loans to small businesses during May and June. Now the Sacramento-based lender is "refinancing" those loans with loans backed by a SBA guarantee, said Brandon Day, assistant vice president at the company's Encino office.

At American Pacific Bank, many interim loans have already been converted to SBA-guaranteed loans because much of the documentation necessary for processing was already completed when the first loan was made, Whitney said.

While the SBA was scrambling for money, American Pacific Bank also made a few SBA-guaranteed loans from funds that "dribbled in," Whitney said.

The dribblings came from SBA loans that had recently been canceled. The SBA redistributes this money for some smaller loans. American Pacific Bank made SBA-guaranteed loans of $50,000, $90,000 and $200,000 from these dribbles, Whitney said.

The dry SBA coffers had a detrimental effect, however, on some small-business owners who had ambitious plans. During May or June, they may have decided not to buy a new building or expand their business, for instance, because they couldn't get a loan, Morita said.

"I'm not sure they can re-alter their plans now that the money is available," he said.

Meanwhile, pent-up demand is causing the SBA-loan business at Money Store to surge. "We've never been busier," Day said.

Tumpak of the SBA said he was certain there would be enough funds to last through Oct. 1. The L.A. office has $28 million on tap and will more than likely end up getting funds transferred from other offices if that runs out, he said.

It is common practice for SBA offices that don't use all their allotted funds to transfer them to busier districts, Tumpak said.

There will be enough money to guarantee loans through the rest of the fiscal year, Whitney echoed.