Magazine article American Banker

Making CRA Hay through SBA; Chase's Community Development Lending Chief Talks about "Expanding the Pie." One Unusual Tool: The Small Business Administration Loan

Magazine article American Banker

Making CRA Hay through SBA; Chase's Community Development Lending Chief Talks about "Expanding the Pie." One Unusual Tool: The Small Business Administration Loan

Article excerpt

Chase's community development lending chief talks about "expanding the pie." One unusual tool: the Small Business Administration loan.

Mark Alan Willis sounds more like a political activist than a banker.

But as president of Chase Community Development Corp., a unit of Chase Manhattan Bank, Mr. Willis is responsible for originating some $150 million annually in mortgage and real estate loans to low- and moderate-income customers.

"We want to focus on expanding the pie, not just dividing it up," says Mr. Willis. "instead of competing on [loan] volume with other banks., we're focusing on making a difference."

Surprisingly, one of the tools Mr. Willis is now using to help change New York's inner city landscape is the once-staid, government-funded Small Business Administration.

Little History with SBA

Chase Manhattan Corp., like many other New York City banks, historically has done little lending through the SBA, which was established in 1953 to help build small businesses after World War II. The SBA is now the largest guaranteed lending program in the country.

The agency, which has ear--marked some $7.5 billion for lending in 1994, guarantees between 70% and 90% of each loan it backs. But bankers have often shied away anyway. They complain that the SBA plays favorites and is too bureaucratic, requiring inch-thick piles of forms.

Even programs aimed at boosting or maintaining banks' Community Reinvestment Act ratings have found the SBA less than useful.

Over the years, the SBA has followed a conservative lending policy, tending to favor traditional small businesses over minority-owned or inner city firms.

A recent study of SBA lending policies found that in 1993, only 3% of loans went to black-owned businesses; 5% to businesses owned by Hispanics; and 14% to businesses owned by women.

A Move to Refocus

As a result, the biggest SBA lenders in New York City are institutions like Banco Popular, which uses the SBA to lend money to owners of taxi medallions, and organizations like the Money Store, which uses it to lend to borrowers of second mortgages. The Money Store sells the guaranteed portion of the mortgages to the secondary market.

But all this could be changing. A new administration at the SBA, headed by Erskine Bowles, wants to refocus the agency on minority-owned businesses, inner city businesses, and other firms that ordinarily wouldn't be eligible for bank loans, such as cash-based businesses, like restaurants or retail stores.

That's made the SBA more interesting to bankers like Mr. Willis.

"SBA ought to be in the role of expanding business opportunities; of bringing access to funds to minorities," said Mr. Willis. "The new administration appears committed to this goal."

"Chase is rejuvenating its pro, gram with us," said Michael Walsh, assistant district director in the SBA's Syracuse, N.Y., office.

At Chase, SBA lending constitutes a tiny percentage of all small-business lending, and an even smaller percentage of lending to low-income areas. Since October, Chase has lent about $6 million using SBA-backed funds.

For Chase, the SBA is just one in an array of programs funded by states or private enterprise and earmarked for low-income communities. Chase is one seven bank members of an alliance with the Brooklyn EConomic Development Corp.

Chase has made an initial contribution of $700,000 to the Small Business Investment Corp., an alliance of the office of Gov. Mario Cuomo, the New York State Bankers Association, and seven banks.

Chase also is experimenting internally with a program that allows branch managers to sign off on relatively small loans to low-income areas, so-called micro-loans, worth tens of thousands of dollars.

The program reverses Chase's policy of centralizing lending decisions for most commercial loans. …

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