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Lending dips locally for small businesses; After federal incentives expire, decline is 43%

Small-business lending locally under government-guaranteed programs remains well below last year's levels, after the expiration of special loan incentives -- including fee waivers and higher guarantees -- that had driven loan activity sky-high in the previous couple of years.

As of the end of March, through the first six months of the federal government's fiscal year, 25 lenders had originated 272 loans totaling $44.03 million under the U.S. Small Business Administration's primary 7(a) program in the Buffalo and Rochester areas.

The loan amount is down by 43 percent, from 439 loans for $77.05 million in the same period a year ago.

The drop may reflect continued lackluster confidence and loan demand by small businesses, which remain wary of the economic recovery and unwilling to take on risks and more debt. Optimism among small-business owners has been inconsistent, rising in some months and falling in others, depending on the news and economic data.

For example, a Siena Research Institute study, commissioned by First Niagara Financial Group earlier this year, found an improvement among upstate borrowers, particularly in Western New York. But confidence is still a far cry from pre-recession levels. And the National Federation of Independent Business reported a drop in its national optimism index, as business owners' expectations for sales and profits fell, along with plans to hire more workers.

"March came in like a lion, with Main Street seeing significant job growth in March -- but it appears to have gone out like a lamb," said NFIB Chief Economist William C. Dunkelberg. "The mood of owners is subdued -- they just can't seem to shake off the uncertainties out there."

So instead, businesses are either funding their growth on their own, or they're sitting tight and waiting it out. The NFIB report found that 92 percent of small businesses said all their credit needs were met or they weren't interested in borrowing, with just over half saying they didn't need or want a loan.

SBA officials were quick to note that lending activity, while down from a year ago, is back at the levels seen before the financial crisis and recession.

"Since January 2011, we have been approving SBA-backed loans at a pre-recession pace. This has continued in the recently completed second quarter," said Franklin J. Sciortino, district director of the SBA's Buffalo District Office.

"Overall, the pace of SBA loan-making is a healthy sign for the economy and the credit markets and is one of the foundations for the infrastructure necessary to deliver financing to small businesses trying to establish themselves and create new jobs for Americans."

The lending activity a year ago may also have been inflated by special incentives that the Obama administration introduced in its stimulus efforts to jump-start the economy.

Those incentives included no fees for borrowers and a loan guarantee of 90 percent, up from regular guarantees of 75 to 85 percent, or even as low as 50 percent on "express" loans with less paperwork.

Buffalo-based M&T Bank Corp., the perennial leader of the pack, remains far out in front, with 94 loans for $10.3 million. That's down by 38 percent and 64 percent, respectively, from a year ago. But it's still nearly twice the number of loans and 63 percent more dollars than No. 2 Five Star Bank.

"M&T is growing overall loans to businesses, and the industrywide slowdown in SBA lending is clearly attributable to the termination of the stimulus program," said Janet M. Coletti, senior vice president of business banking at M&T.

Five Star, the Warsaw-based subsidiary of Financial Institutions, posted 48 loans for $6.33 million, down by 18.6 percent and 25 percent, respectively. Coming in third is Hamburg-based Evans Bancorp, with 21 loans for $5.7 million, representing a slight drop in loans but an increase in dollars. Evans was ranked sixth in loans and fourth in dollars a year ago.

By number of loans, Key is fourth, with 17, followed by Genesee Regional Bank with 15, Lyons National Bank with 13 and Bank of Castile, HSBC and First Niagara all tied at 10 loans apiece.