Banks appear reluctant to participate in SBA loan program

The small business loan program, part of the federal stimulus package, sounded like just the tonic that St. Petersburg liquor store owner Walter vanSchaik was looking for.

The idea: Banks would offer government-backed, no-fee, no-interest loans up to $35,000 apiece to help small business owners recover and grow.

The problem: Many banks, particularly in Florida, aren't buying into it. VanSchaik found that out firsthand when he asked Bank of America for a loan application to make improvements to his Aloha Liquor store at 54th Avenue N and Interstate 275.

"They said they haven't decided if they're going to get involved with the program," he said, "but they sure don't mind involving themselves with getting my tax dollars."

The loan program, called America's Recovery Capital, has drawn the ire of both small businesses and politicians for its slow start. As of Sept. 1, about 1,850 loans have been approved since its June launch, according to a Small Business Administration database. At a maximum $35,000 per loan, that means less than $65 million has been allocated out of the $255 million program.

"In a nutshell, the banks are refusing to administer a federal small business loan program despite the bailout help and despite the loans posing little or no risk," Sen. Bill Nelson, D-Fla., wrote in a letter to President Barack Obama last week.

Nelson objected that many of the banks refusing to offer recovery capital loans have received billions in taxpayer funds through the Troubled Asset Relief Program. He singled out Citigroup, which received $50 billion, and Bank of America, which got $45 billion. Bank of America spokeswoman Nicole Nastacie said late Friday that no decision has been reached on whether the bank will participate in the loan program.

Nelson asked the president to work with the SBA and Treasury Department to increase participation by relief-program assisted banks.

When he wrote the letter a week ago, Nelson noted that "only 65 such loans have been issued in Florida — a pitiful number for a state that has nearly 2 million small businesses."

As of Sept. 1, that had inched up to a total of 83 Florida loans, according to the SBA database.

"There are some awful numbers in terms of the banks doing the program," said Jim Parrish of the University of South Florida's Small Business Development Center in Tampa. "Iowa has 33 banks participating in the program and that's only four less than California, Florida and New York combined."

Indeed, the SBA database indicated the program was most popular in less-populated states; the two biggest players were Minnesota and Wisconsin with 259 and 204 loans, respectively.

Under the program, the borrower makes no payments for 18 months and then has five years to pay back the interest-free loan.

Parrish said he understands banks' reluctance, citing a report from the U.S. Governmental Accountability Office that estimated 56 percent of the borrowers may not repay the loans.

"The banks don't want to fool with these loans that, truthfully, they don't make any money on," he said. "Because of all the handling costs, it's not profitable … and they might turn around and half of them could go bad."

Jeff Harrington can be reached at jharrington@sptimes.com or (727) 893-8242.