Bank failures even jeopardize paid-up loans
WHEN its bank failed last fall, Wesbell Electronics was in trouble - like hundreds of other small businesses in New Hampshire. Its survival depended on finding a new source of credit.
The four-year-old company, which makes electric wiring, had never missed a payment on its loan, and sales had gone up 40 percent last year despite the region's recession-bound economy.
But as owner Ken Bell sought credit with other banks, he found no takers. Although Wesbell's "trend had always been up," banks were leery because of the state's frozen economy and the young company's liabilities, he says.
Enter the Small Business Administration. The SBA, an agency of the federal government, agreed to help Peterborough Savings Bank bear the risk of the loan, thus saving the jobs of Wesbell's eight employees.
Now, through a pilot program started last month, the SBA wants to give this kind of help to other small businesses in New Hampshire, many facing a similar financing predicament to that of Wesbell. In the process it expects to save several thousand jobs.
By March the SBA hopes to begin similar programs in other New England states, starting in Maine and Massachusetts. The agency has requested more funding from the White House and Congress to expand the program.
Hundreds of loans to small companies are in jeopardy because of the failure of 12 Granite State banks in the last two years, including five of the seven largest. When a bank fails, its loans wind up in the hands of the Federal Deposit Insurance Corporation (FDIC). Usually the best assets are sold to other banks. But many loans, like Wesbell's, are considered risky, even though borrowers are making payments.
After a year of negotiation, the SBA and FDIC agreed in October on a means by which the SBA could cull the FDIC's "bad asset pool" to find loans that might be restructured with an SBA guarantee. Many of these loans already have SBA guarantees, but the terms may need to be restructured due to changed business conditions. The SBA hopes to guarantee $96 million in loans to small New Hampshire companies.