Little Doraville bank becomes big financial player

Metro City Bank’s founders didn’t start out planning to become the state’s biggest small business lender, but that’s what happened recently after the financial crisis sent its biggest competitors into retreat.

Even though the “big boys” like Bank of America and CIT Group slowed such lending to a trickle during the recession, said Metro City Chairman Nack Paek, “we never stopped making loans to small business.”

As a result, the little Doraville bank that Paek helped found in 2006 is now on the front lines of one of the federal government’s key efforts to get the Main Street economy moving again.

Since March, 2009, the U.S. Small Business Administration has been offering bigger loan guarantees and waiving borrowers’ fees to entice banks and small business owners to take out more loans to expand and add jobs.

And over the last six months or so, it seems to be working — at least at Metro City Bank and other lenders who have roughly doubled SBA-backed lending in Georgia despite the retreat of some big players.

In the last three months of 2009, the volume of loans guaranteed by the SBA more than doubled compared to a year earlier, to about $219 million, according to the SBA. The number of loans jumped 83 percent, to 410.

At that pace, which seems to have continued or sped up so far this year, the state’s SBA lenders could make up ground lost during the recession. Although the number of loans continues to lag, the dollar volume could exceed 2007’s peak lending of $789 million.

Song Hall, 52, is doing her bit to boost both totals. She plans to open her third M&J Home Cooking Restaurant next month in Carrollton with the help of a $150,000 loan she got from Metro City Bank last year. It is her second SBA-backed loan from the bank.

“I have good employees. That’s why I can open another one,” said Hall, who launched her first restaurant in Marietta six years ago, then another in Rome. She now has 40 employees.

Hall, who moved to the United States from South Korea in 1978, said she may go back for another SBA-backed loan for a fourth restaurant “if this one is good like the other two.”

Overall lending still slow

Indeed, SBA-guaranteed lending appears to be one warm spot amid still chilly credit conditions in the state.

SBA Georgia District Director Terri Denison said more than two dozen Georgia lenders have joined the SBA lending program since the beginning of 2009.

The attraction: As part of last year’s fiscal stimulus package, the SBA now guarantees up to 90 percent of bankers’ loans to qualifying small businesses, up from 75 percent previously. The SBA also waived borrowers’ fees, which can top $50,000 for a $2 million loan.

The incentives, which have already been extended once, are scheduled to expire this month. But industry players expect Congress to approve another extension at least through September.

In another move, President Obama announced a proposal earlier this month to pump up to $30 billion from the Troubled Asset Relief Program into small banks under terms that would encourage more lending to small business. That initiative, separate from the SBA’s program, would also require Congressional approval.

Despite the recent jump in SBA activity, it’s unclear how much impact the agency’s revved-up lending is having on overall small business lending.

A recent survey by the Federal Reserve Bank of Atlanta of 206 small businesses in its southeastern district indicated that lending remains slow, largely because Main Street firms are still reluctant to borrow or expand while their sales are weak and the economy is gloomy. Only half of the firms surveyed sought loans.

The Fed said credit conditions for small businesses appeared mixed. Of the small businesses that needed loans, about 60 percent were able to borrow.

SBA’s impact grows

Historically, the SBA has been a relatively minor player. The agency has typically backed about 8 percent of overall small business lending, it estimates.

The SBA’s loan totals dipped severely from 2007 to 2009 — to the lowest levels in five years — as many small businesses took the brunt of the recession. Volume was also hurt, especially among the largest lenders, when the secondary market for SBA-backed loans virtually froze up during the Wall Street crisis in late 2008.

But the SBA’s role now appears to be growing with the help of its incentive program and the thawing of its secondary market, where banks sell about 40 percent of their SBA-backed loans.

The SBA’s Denison said her Atlanta office gets plenty of calls indicating that loans are still hard to come by outside of its programs.

“My gut [feeling] is what [lending] is being done is being done through us,” she said.

As of the end of last September, the agency said its loan guarantees and other programs backed $90 billion worth of outstanding loans nationwide. That equals roughly 12 percent of business loans under $1 million that are on banks’ books, according to the latest figures compiled by the Federal Reserve Bank.

Some industry observers said they believe the SBA-backed loans may now account for most new lending to small businesses.

“Our loan demand is higher than ever because the other banks can’t loan. They don’t have enough capital,” said Metro City Bank’s Paek (pronounced “Peck”).

He said SBA-backed loans have accounted for as much as 70 percent of his bank’s new business loans in recent months as business owners have refinanced their conventional loans or expanded. The bank has specialized in SBA loans, booking about $70 million of them in the last four years.

About $15 million of that total has been in the last four months alone, and Paek expects the bank’s SBA loans to total “at least $40 million” this year.

Even though the economy has been especially tough for small businesses, he said, “there are still people opening new businesses.”

‘A great chance’ to grow

Jong Hong and his father are two such people. Hong said his father, Jay Hong, opened Sunny Beauty Supply in Jonesboro in 1997, a year after moving from South Korea, where he had owned a book-printing business.

Six months ago, they borrowed about $300,000 through an SBA-backed loan from Metro City bank to boost inventory and open their fifth location, in McDonough.

With so many empty retail spaces from closed video stores, pharmacies and other businesses, “We think this is a really great chance to make it bigger,” said Jong Hong, 26. “There are a lot of really great locations out there.”