Some banks pledge interim aid as SBA funds fade.

Some $130 million of local loans could be in jeopardy 

Now that the Small Business Administration's coffers are dry, several local lenders say they might provide interim financing to small businesses until new SBA money comes through.

The nationwide SBA program to guarantee loans made by banks and other financial institutions to small businesses ran out of money last week. The funds may not be replenished until Oct. 1, when the federal government's new fiscal year starts. The agency got $3.6 billion for fiscal 1993.

The SBA guaranteed more than $130 million worth of loans to Los Angeles-area businesses from Oct. 1, 1992, to March 31, 1993, said Morris Van Asperen, senior vice president at Los Angeles-based National Bank of California, an SBA lender.

Judging by these figures, and considering that SBA loan activity usually picks up during the second half of the fiscal year, at least $130 million worth of local loans could be in jeopardy through Oct. 1 now that SBA funds aren't available, Asperen said.

From another angle, the SBA makes about 1,200 loans a year in the L.A. area. Thus, 500 to 600 businesses could be affected, said SBA District Director Mike Lee.

But many local small businesses may not be left in the lurch because several SBA lenders have expressed a willingness to provide small businesses with short-term loans until new SBA funds are available.

The short-term loans would be approved but not guaranteed by the SBA, and would be repaid with the eventual SBA-guaranteed, long-term financing when funds become available in the new fiscal year. Thus, the banks are hedging that the SBA coffers will soon be replenished.

Sherman Oaks-based American Pacific State Bank plans to make short-term loans, for 90 days for instance, hedging that SBA funds will be available before Oct. 1, said James Whitney, senior vice president of the bank's SBA loan division. If the funds aren't on tap by then, the interim loans will be renewed, he said.

However, the bank will refrain from making any highly leveraged loans in this program, Whitney said.

Van Nuys-based Industrial Bank is currently processing five SBA loan applications. The bank will try to provide interim financing, or "bridge loans," for about six months to these borrowers, said Dorothy Walker, manager of the bank's SBA loan department.

The ability to provide such loans may depend upon the amount of collateral each borrower has, she said.

Bridge loans are an extra strain on borrowers because fees, title insurance and other requirements are needed twice, she explained -- first for the bridge loan and then eventually for the SBA-guaranteed, long-term loan.

Officials at National Bank of California are currently processing three SBA loan applications and plan to secure SBA approval to provide these applicants with interim financing for 90 days. If funds aren't available by the end of that period, the term will probably be extended, said Van Asperen.

Los Angeles-based California Center Bank may also provide SBA-guaranteed loan applicants with bridge loans, but bank officials are waiting to see if the SBA makes another announcement soon regarding its funding, said Steve Park, assistant vice president and a loan officer at the bank.

But "I don't think borrowers can take comfort, at least in every case, that lenders will make an interim loan," said Cliff Shank, a principal with Clifford Shank & Associates, a Calabasas-based bank consulting firm.

Some banks might not provide interim financing for two reasons. First, the loan amounts, now that they are not being guaranteed by the SBA, might exceed the bank's lending limits, Shank said. Under an SBA-guaranteed loan, banks do not need to have funds to cover the amount being guaranteed, he explained.

Also, it is against the some banks' policies to provide interim financing, Shank said.

West Covina-based California State Bank, for example, "might" provide some interim financing to a few SBA-guaranteed loan applicants, but basically bank officials are going "to tell a lot of people unhappy news" their loans won't be available, said Richard Jett, senior executive vice president.

Paramount-based Mechanics National Bank may also provide only a limited number of interim loans, said Jerry Morita, president of its SBA division. The applicants would probably have to meet the bank's conventional lending criteria and each applicant would be judged case-by-case, he said.

In the meantime, Mechanics National Bank continues to process SBA-guaranteed loan applications as if the funding were available and bank officials hope the money pops up, Morita said.

Mid-Wilshire-based Hamni Bank doesn't plan to offer SBA-approved bridge loans, but will take a risk by providing long-term financing to small businesses without the luxury of the SBA guarantee, said Vice President Sungsoo Han.

The Los Angeles office of the SBA "will continue to process applications in anticipation of funding," district director Lee said. The applications will be processed until they reach the commitment phase and then they will be backlogged, he said.

Victims of the April 1992 riots who received SBA disaster loans will not be affected because these loans are part of a different program, Lee added.

In general, the small business community is appalled at the SBA lending situation. "It's apparent Congress needs to appropriate more money to the SBA," especially when the government spends $60 billion to $80 billion bailing out the savings and loan industry, said Skip Cooper, executive director of the Black Business Association.

"The SBA is one of the few avenues available for small, minority-owned businesses to receive the capital necessary to grow in these economic times," added Ed Vasquez, spokesman for the Latin Business Association. "Without SBA loans at this point, it makes it extremely difficult for businesses to grow."