Small-business loans plunge in Arizona

Small-business loans in Arizona seem to be drying up, according to data released by the U.S. Small Business Administration.

The figures, released Oct. 24, are yet another indicator that Arizona's small-business owners are facing an uphill battle in these tough times, said Robert J. Blaney, SBA's Arizona district director.

"The economy, increasingly stricter credit standards, the pronounced aversion to risk among commercial lenders, and the resulting difficulty in accessing capital are conditions small-business owners know well," he said.

According to the data, the number of loans made through the SBA in fiscal 2008 -- which ended Sept. 30 -- fell 27 percent, bringing the total to 2,022. The value of those loans also plummeted 32 percent to $880 million.

In fiscal 2007, the SBA reported 2,960 loans were handed out, adding up to about $1.2 billion.

SBA executives say blame can be placed on borrowers and lenders alike, as both have changed their behavior.

While the SBA is not a lending entity itself, the administration guarantees loans made by banks. It has witnessed lenders tighten credit standards in an effort to reduce risk in the uncertain economy.

Borrowers, in turn, have become more reluctant to take on new debt because of their loss of sales.

In addition, business owners' devalued collateral -- mostly from their deteriorating home prices -- places many owners who qualified for loans last year out of consideration this year.

Rich Senopole, executive director of Maricopa Community Colleges' Arizona Small Business Development Center Network, says that many of the small businesses his organization consults are feeling the crunch. The network served more than 3,000 clients in Arizona in 2007.

"Given the market, many owners just don't want to take on the risk of a loan," he said. "They're afraid they won't be able to bounce back and pay the loan in a timely fashion."

The problems are not isolated to Arizona. SBA's national numbers are equally gloomy.

Loans approved under the administration's 7(a) program -- designed to assist small businesses with startup and working-capital needs -- declined by 30 percent. The number of loans fell from 99,606 in 2007 to 69,434 in 2008. And loan values dropped 11 percent as well, from $14.3 billion to $12.7 billion.

News of the decline is disheartening, SBA executives said, because loan volume in the program had set records in each of the previous five years.

But there is hope on the horizon, said Sandy K. Baruah, SBA acting administrator.

He said that the recently signed Emergency Economic Stabilization Act of 2008 could "unclog the arteries of our financial system, allowing credit and capital to flow once again."

Baruah added: "And that objective should be important to all of us because capital is the lifeblood not only of our economic system, but also small business."