News - Local

Tuesday, Sep. 30, 2008

SLO County borrowers might find it tougher to get loans

While money is still available, businesses and homeowners may find it tougher to get

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Loans are still available locally for first-time homebuyers and small businesses, but the crisis on Wall Street has heightened concern about further credit tightening at a time of economic uncertainty.

“Wall Street’s troubles are definitely having a negative impact on Main Street in San Luis Obispo County,’’ said Mike Manchak, president of the Economic Vitality Corp. of San Luis Obispo County.

Some clients of the Mission Community Services Corp., for example, are finding that it’s a challenge to stay afloat without access to much-needed capital, said Andrea Zeller, executive director of the San Luis Obispo organization that provides assistance to those seeking to start or expand a business.

“Cash flow is tight, people are not applying for loans, and lenders have tightened up, causing businesses to hunker down,’’ she said.

To counter that, some complementary businesses are sharing marketing, and they’re learning how to better manage cash flow.

“The smart and focused business owners are doing well, and by well, I mean surviving,’’ said Zeller, whose organization’s own sources of funding are taking a hit.

Despite the troubled economy, the EVC’s business loan guarantee program is showing strong activity, Manchak said, and it’s seeing a lot of entrepreneurs seeking capital.

Several community bankers also noted that it is business as usual, with funding available for credit-worthy borrowers.

“We’re a cash-flow lender, as are all community banks, and we have the same standards in good times and in bad times,” said Tom Sherman, chief executive officer of Founders Community Bank in San Luis Obispo. “We’re still lending the same types of things. The flow of requests has subsided a little bit, but that’s simply a function of the economy as well. We want to help people like we always have.’’

Steve Harding, regional president at Rabobank, N. A. in Arroyo Grande, said the lending environment at that institution is no different from what it has been in the past.

“If you have good credit and a good business plan, you will still be able to get money under the same pretenses as two weeks ago or two months ago,’’ he said.

Tightening up on loans

Even so, some in the economic development and home loan business report that loans are getting increasingly harder to obtain, and that can result in missed opportunities for would-be borrowers.

“It’s impacting us significantly,’’ said Zeller, with Mission Community Services Corp.

“”We still have SBA (Small Business Administration) funds, but we’ve leaned a lot on the banking community for funds under the Community Reinvestment Act, and banks aren’t supporting us as much as they have in the past.’’

At the Cuesta College Small Business Development Center, director Israel Dominguez said it is getting tougher and taking longer for clients to obtain funding in part because of stricter requirements for borrowers. Some are asking for a dollar-for-dollar match on collateral to reduce their risk.

It took one of the center’s clients — the operator of the Los Osos Early Care and Education Center — several months to get a loan because of additional paperwork, he said.

“The lending process used to be very quick,’’ Dominguez said. “An individual could go into a bank and apply, and within two weeks know they were funded. Now, the process is four to six weeks or more.’’

Right now, small-business owners should consider other sources of funding, he said.

“If they’re not funded by a bank, they need to look at a private investor, an angel investor … whether that’s a family member or another business person,’’ Dominguez said.

Ken Pettit, a San Luis Obispo business owner, said that his business isn’t in need of capital. But his advice to those in need of cash is to rethink whether it’s essential.

“It’s also a good time to ask yourself if you should continue doing what you’re doing,’’ said Pettit, who owns Big Images, a large-format printing and technology company. “It could be time to change course completely.’’

Home loan restrictions

The environment is also more challenging for some homebuyers, lenders say. While many loan products continue to be available for those who qualify, potential borrowers face more restrictions.

“You have to be qualified based on your documented income and assets,’’ said Kimberly Rivas, a loan officer at Cen- Cal Mortgage in Paso Robles. “That’s the standard out there now.”

As of Oct. 1, the FHA is requiring a larger down payment for a home loan, she said, from 3 percent to 3.5 percent. It’s also eliminating the seller down-payment assistance program, which allowed borrowers who didn’t have the required down payment to build it into the sales price of the home, and then receive a gift from a charitable organization to be used as the down payment.

“These are pretty crazy times,’’ Rivas said. “But we’ve been through this before. There still has to be confidence instilled in the consumer that everything is going to be OK and that we’ll come out of this … eventually.’’