Colorado is lagging behind most states in delivering federal stimulus aid to small businesses with emergency financial needs, issuing only six of the 919 loans made so far under a new national program.
The bottleneck exists in part because many state banks are reluctant to take advantage of the America’s Recovery Capital program — even though loans are 100 percent guaranteed — baffling government officials and some business owners who have been forced to seek loans outside the state.
Small Business Administration officials, who manage the program, acknowledge that not every bank in the state may be fully informed about the loans.
A spokesman for the Colorado Bankers Association says some institutions view the loans as risky, especially at a time when regulators are cracking down on lending to distressed borrowers. And because loans are limited to $35,000, banks gain little unless they generate a high volume.
“Despite the government’s good intent, this is a program where banks stand to lose,” said Don Childears, president of the association.
Still, the fact that hundreds of banks outside Colorado are tapping the money pipeline — Wisconsin alone has originated 100 ARC loans — makes the dearth of such lending here vexing to industry watchers. Two of the top SBA lenders in Colorado, U.S. Bank and Wells Fargo, declined to respond to questions from The Denver Post about why they haven’t made ARC loans here.
“Somewhere there’s a disconnect,” said Christopher Chavez, regional spokesman for the SBA.
Under the American Recovery and Reinvestment Act, the federal government freed up more than $255 million nationwide to guarantee short-term, interest-free loans to small businesses with existing debt facing immediate hardship.
Those funds will cover payments of principal and interest for business debt such as credit-card payments and mortgages. The borrowers are allowed deferred payments, while the banks can make 2 percent interest above the prime rate.
Since May, when the program was announced, 316 lenders across the country have joined the program, shelling out $26 million, according to the SBA Washington office. Yet only three Colorado lenders have participated.
The SBA could provide The Post with only a partial state-by-state breakdown of loans issued. On the high end, Wisconsin has handed out 100 ARC loans; Ohio has issued 50. Colorado, with six, and New Jersey, with three, are at the bottom of the pack.
Chavez said he believes the ARC loan program is in high demand locally, as evidenced by the two dozen weekly phone calls to his office from business owners seeking information about it since early summer.
But few have reported that they’ve found local banks interested in underwriting the loans. And some contacted by The Post fear they will alienate their local banks if they publicize the problem.
“Banks were telling me they would never do it, but they wouldn’t give me a reason,” said one small-town Colorado businesswoman who asked not to be identified.
Ultimately, she secured a loan through a Utah lender, allowing her to keep her food delivery business running. “We’re struggling, and this helps us for a while.”
The three Colorado banks responsible for the six ARC loans — CoBiz Financial, Commerce Bank and Farmers and Merchants Bank — saw little risk or downside, given the complete SBA guarantee.
“It’s not highly profitable,” said Jonathan Lorenz, chief executive for CoBiz. “We’re looking at it as supporting our community. It’s certainly not a cure-all, but it does, for a lot of banks, provide a bridge through a tough time.”
Chavez said the SBA has contacted its network of 100-plus lenders in the state about the program. But he acknowledged that he’s uncertain whether his office has contacted every bank in Colorado. He also said he’s not aware of any meeting SBA officials have had with the Colorado Bankers Association to hash through issues.
In recent months, he’s been encouraging business owners jilted by banks to keep knocking at other doors.
One possible problem is that some banks have an inaccurate perception of SBA’s management of its loans, he said.
“We’ve heard that the interest-rate spread is not high enough for the banks, but the SBA is allowing for 2 percent over the prime, which is competitive,” Chavez said. “Then there are issues raised by lenders about whether SBA will pay out in the end if a loan goes bad. We’ve explained that SBA has honored 97 percent of all guarantees on loans unless there’s fraud involved. We honor our guarantees.”
Still, Childears stressed that, despite the guarantee, a bank faces loan integrity issues that could lead to possible regulatory penalties when it opts to finance a struggling borrower at risk of default. Many Colorado banks have reported that regulators are pressuring them to steer away from loans that could pose problems.
Also, the SBA and Office of Management and Budget have forecast that up to 60 percent of ARC borrowers could default on their notes.
“Banks in our state know how important small businesses are,” Childears said. “They would like to keep them going. But if you have that high rate of default, should banks be handing out these loans just because the government will pick up the tab?”
Miles Moffeit: 303-954-1415 or mmoffeit@denverpost.com
