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A new source of Small Business Administration loans has arrived in New Jersey. 

A new source of Small Business Administration loans has arrived in New Jersey. 

Community development financial institutions — typically, nonprofit lenders whose mission is to promote economic development — have for years been making small SBA microloans of less than $50,000. Now, the SBA is encouraging those CDFIs to make government-guaranteed loans of up to $250,000 through the SBA 7(a) program.

In New Jersey, UCEDC, in Cranford, and the Regional Business Assistance Corp., in Mercerville, are among the first CDFIs in the country to become 7(a) lenders under the Community Advantage initiative.

This is a major step for UCEDC, said Maureen Tinen, president. UCEDC closed its first loan in February, and has $670,000 in the pipeline, all without any marketing.

“As soon as we said we’re a 7(a) lender, (loan brokers) said, ‘We’ll send you our clients,'” Tinen said. Banks can make 7(a) loans of up to $5 million, but the new Community Advantage program loans are capped at $250,000.

Tinen said the program bridges the gap for companies that outgrew microloans, but aren’t ready to borrow more than a quarter-million dollars. The UCEDC is now dealing with a new tier of borrowers, “who have more personal funds to put into the business, and can do a six-figure startup,” said Paula Star, loan outreach coordinator at UCEDC.

For the microloan program, UCEDC borrows money from the SBA and lends it to small businesses. But for the 7(a) program, UCEDC borrows money from banks, then lends it to businesses, with the SBA guaranteeing repayment of up to 85 percent of the loan. As loans are repaid, UCEDC will make more loans. She said banks want to lend to UCEDC because it helps them comply with the Community Reinvestment Act, which requires banks to lend in geographic areas where they gather deposits.

David Gonzalez, owner of Maplewood Tire and Car Care Center, is seeking a $110,000 SBA loan from UCEDC to repay lenders who provided him with financing to buy out his former partner two years ago. The SBA loan has a lower interest rate and a longer term — up to 10 years — significantly lowering his monthly payment. Gonzalez has six employees, and the increased cash flow will enable him to hire another person. “I’ll be in a much better position, with fewer headaches,” he said.

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