Erin Gates, left, and Christine McNinch used SBA-backed loans to keep their business, Meals For A Week, growing. Photo by Johnny Quirin
More small businesses in Michigan this year are getting loans backed by the federal Small Business Administration, which one local expert attributes to a strengthening economy and greater confidence on the part of commercial lenders.
Eric Seifert, who spent a career in commercial lending at banks and now works for the Small Business Development Center at GVSU as a business growth specialist, said SBA lending as a whole increased significantly in Michigan this year. Seifert’s main occupation is helping entrepreneurs and small businesses find start-up loans and expansion loans.
The SBA doesn’t actually put up the capital for loans; rather, it offers guarantees to the lenders to encourage them to make the small business loans in the first place.
Seifert said that, based on data provided by the SBA office in Michigan, SBA-backed loans in the state are up 18 percent in terms of total dollar volume, and 12 percent in the number of loans. That is comparing the same timeframe in 2013 to the most recent numbers on SBA year-to-date activity in 2014.
When it comes to SBA lenders in Michigan, there are “a whole bunch of small players in the market,” according to Seifert, but a short list of the most active SBA lenders in West Michigan usually starts with Huntington Bank.
“Huntington Bank has led the state for several years in SBA financing — number one by a huge lead,” said Seifert. He noted, however, that Huntington is not the largest bank in Michigan: It ranks sixth.
“So that shows just a huge commitment to SBA lending” by Huntington, he added.
In the first 10 months of the current federal fiscal year, Huntington made 623 SBA 7(a) loans statewide, totaling more than $139 million, compared to $112.4 million in the same period last year. In April, the financial institution announced it had made the highest number of SBA 7(a) loans in the United States.
On a statewide basis, JP Morgan Chase is the second largest SBA 7(a) lender, with $17.2 million loaned this year compared to the same period last year, when the number was $15.6 million.
“Comerica has almost doubled their volume, which is incredible,” said Seifert, having gone from $23.5 million in SBA loans last year to more than $44 million this year.
Chemical Bank also experienced a significant jump, from $4.9 million to $12.2 million.
Even small community banks picked up dramatically this year in SBA-backed lending: Community Shores, based in Muskegon, went from $400,000 in 2013 to $3.3 million this year.
On a West Michigan basis alone, Huntington made 147 SBA 7(a) loans in the first 10 months of fiscal 2013 in Kent, Muskegon and Ottawa counties, with a total value of $16 million. For the same period in fiscal 2014, it was 277 loans, worth $24.8 million.
The Bank of Holland was second, with 19 7(a) SBA-backed loans, for $7.2 million. Other leaders in the three-county region this year, in order, are: JP Morgan Chase, Chemical Bank, Comerica, Grand River Bank, PNC Bank, Community Shores, ChoiceOne, Independent, Founders and Macatawa.
Seifert said the improving economy is definitely boosting the number of SBA loan applications, and it is also making banks more confident in borrowers’ abilities to repay their loans. Three to four years ago, Seifert was seeing a lot of small companies “floundering and desperately seeking financing,” but today, he said, many companies “are growing fast and outgrowing their banks, so it’s a positive story.”
There were also a large number of business owners who were not able to sell their businesses during the Great Recession, but now they can, and many buyers are approaching with SBA-backed financing.
Seifert said credit unions and community banks are more interested in listening to the explanations from potential commercial borrowers if there is a credit-worthiness score “that’s not quite right. They’ll dig into it, where at some big banks, it’s a mechanized process and if you don’t hit the score, end of conversation.”
Further indication of the improving economy and commercial lending climate is seen at the nonprofit Economic Development Foundation of Grand Rapids, which administers SBA 504 loans throughout the state. The 504 loans are only for “hard” assets, such as purchase of equipment, real estate and facilities. The loans are for larger amounts and for longer periods of time than 7(a) loans, which can be used for practically any business purpose.
Sandy Bloem, president and executive director of the Economic Development Foundation, said compared to last year, the 504 loan volume is down significantly.
“A lot of that, I believe, is due to the fact that lenders are getting more aggressive again,” with the banks’ terms getting “a little looser” and offering better interest rates, said Bloem.
“They’re willing to take a little more risk than they were maybe a year ago,” she added.
Beyond the conventional SBA 7(a) and 504 loans are a growing number of microloan programs around the state. Seifert said the amounts are generally for $50,000 or less, designed for business borrowers who would not normally qualify for bank financing.
Two years ago, GROW — Grand Rapids Opportunities for Women — became the only organization in West Michigan to sponsor microloans funded by SBA, which are available to both women and men. As of June, GROW had deployed about $400,000 and had the ability to facilitate another $700,000 in capital.
Earlier this year, Huntington announced it would allocate $25 million to its own microloan program, which is administered by its local partners in Michigan. It started with Detroit, where $5 million has been allocated, and Seifert said he has heard West Michigan will be next.
GROW is said to be under consideration as the Huntington partner in West Michigan, but the bank has not made a final decision yet.
Huntington does very well financing microloans, said Seifert, “so we’re all kind of anxious to get this in play” in West Michigan.
There are also some small angel investor organizations in West Michigan in communities such as Muskegon and Traverse City that are willing to take a look at very small businesses that can demonstrate potential and are “just starting or needing a boost” with an additional infusion of capital, he said.
As an assist to small business, angel investors also typically provide each of their borrowers with a mentor who is experienced in business.
SBA keeps entrepreneurs cooking
Mother/daughter team enlisted the help of the SBDC.
Meals For A Week is a small Grand Haven business that was helped out of a financial bind by the GVSU Small Business Development Center and SBA-backed loans from The Bank of Holland.
Three years ago, Christine L. McNinch and her daughter, Erin Gates, had an idea for a new business and took the plunge. McNinch and Gates, an executive chef trained at Baker College in Muskegon, saw an unmet demand for home-cooked meals that people could order and pick up to take home for those nights when they didn’t want to cook and didn’t relish the idea of still another home-delivered pizza or subs.
The idea panned out, so to speak, and now people come from as far as North Muskegon and Holland to pick up home-cooked entrees and sides, made to order, which they can reheat for a sit-down, family-type meal. McNinch said in a busy week they prepare about 150 meals or more, and the business now employs seven.
They had bought a house on land contract on the east side of Grand Haven in a former industrial area and totally renovated it as a licensed commercial kitchen. Then the orders began coming in.
“We obviously ran out of money real quick and had no clue, so I used personal credit,” said McNinch, referring to credit cards.
Finally, she decided to try to secure financing for the business, and went to talk to some of the biggest banks in West Michigan, but to no avail. She said her credit score was good — in the 700s — “but my debt-to-income ratio was in the pit.”
Part of that had to do with her salary from the business, which she said wasn’t set very high.
With help from Brooks Kindel at the SBDC, McNinch and Gates got linked up with The Bank of Holland, which came to see her kitchen in action.
“They believed in us. They understood what we were doing,” said McNinch.
It helped that, during the visit, the banker saw a meal that had been prepared for someone he knew who was home-bound while undergoing chemotherapy.
The Bank of Holland made two SBA-backed loans to Meals For A Week, which now has a mortgage on its business facility and a small line of credit.
The business also is delving into corporate catering, and revenues are up 41 percent over last year at this time. Of course, growth also presents more opportunities. The business now needs a walk-in cooler, so McNinch and Gates are talking to Kindel again.