Kern County small businesses feeling optimistic about economic comeback
When economic headlines are gloomy, it's easy to overlook good news. But some good Kern County news now can be found in the federal Small Business Administration's 504 loan program, which gets much of its support from local community banks.
Keith Brice, president of Mid State Development Corp. in Bakersfield, reports that there is a healthy demand for loans to expand existing local small businesses.
Mid State is Kern County's certified non-profit company that processes SBA loans, including 504 loans that generally finance real estate purchases.
While the volume of the SBA 504 loans is down from the boom years, Brice calls the local demand "good," with business owners in the "minority" classification, which includes women, receiving a growing number of these loans. A lot of these loans are being given to medical-related businesses, while service companies, including fast food restaurants, are getting loans to expand.
What does this mean? Many local small businesses are optimistic about Kern County's economic outlook. They are seeing the economy turning around and they want to position themselves to benefit from the recovery.
The SBA's 504 Certified Development Company (CDC) program provides credit for the purchase of real estate and other fixed assets tied to a business's expansion. Financing under the program includes three components:
* A first mortgage or lien, which is made by a private commercial lender, such at Mission Bank in Bakersfield, for 50 percent of the total project and does not come with a government guarantee.
* A second mortgage or lien, which is made and serviced by a CDC, such as Mid State, for 40 percent of the total project and is funded through the issuance of government-guaranteed bonds.
* Borrower equity for the remaining 10 percent of the total project.
The advantages in these 504 loans include: favorable interest rates; longer repayment terms; reduced risks to banks; and less equity required of borrowers.
Since 1994, small businesses nationally have created two-thirds of all new jobs and have employed more than half of all private-sector workers. This deep recession has slammed small businesses that have seen the demand for their products decrease, as financing for their operations has dried up.
The Obama administration has looked to the SBA to work with community banks to help small businesses weather this economic storm by providing financing and other incentives to expand. The steps that already have been taken and new ones that are being proposed, including raising the limits on some loans, seem to be working, at least in Kern County.
No doubt many small businesses still are struggling. But as real estate prices in Kern County remain low, many healthy small businesses are using SBA 504 loans to expand.
Often these are businesses that have been renting their retail or manufacturing facilities for years and now look to purchase their properties. In other cases, successful businesses are realizing it is time to buy property to open a second or third outlet.
In a recent news release, SBA administrator Karen Mills called the 504 loan program "another tool in our recovery toolbox that will expand access to the capital small businesses need to drive economic growth and create jobs."
The 504 loan program is just one way locally focused community banks are partnering with small businesses and government agencies to drive the nation's economic recovery.
A single "magic bullet" does not exist to end the recession and get Americans back to work. Rather, it requires programs, such as the 504 loan program, in combination with others to support small businesses that comprise the engine of the U.S. economy.
Stanley Newman is the senior vice president and chief credit officer of Mission Bank in Bakersfield.
