Monday, Oct. 26, 2009

Horry, Georgetown counties scoop into stimulus

Initial reports show South Carolina trails much of the nation in receiving benefits from the federal Recovery and Reinvestment Act, but a handful of businesses in Horry and Georgetown counties have been able to use stimulus funding to keep their doors open, purchase new equipment and prevent layoffs amid the worst economy since the Great Depression.

Nineteen area businesses have qualified for $18.3 million worth of government-guaranteed loans, ranging from $22,500 for a handyman service in Surfside Beach to $3 million for a gate company in Georgetown, according to the government's recovery.gov Web site.

Such loans -- backed by the U.S. Small Business Administration and the U.S. Department of Agriculture -- have a shaky history along the Grand Strand, with high default rates and little evidence of job creation. But for the business owners who received money this summer, the loans are a godsend.

"Without the money, I'd be one of those small businesses that's no longer in business," said Jerome Williamson, president and owner of Canopy Investigations in Aynor. Williamson used a $25,000 SBA loan to buy a vehicle, computer equipment and cameras for his one-man private-eye business. "I tried to get a loan through other sources, but no bank would help me."

Sallie Walbourne, owner of Pet Pizazz Salon and Spa in Conway, said her business "wasn't going under by any means," but the stimulus money "gave me some cushioning during the rough economy."

Walbourne said the $45,000 SBA loan she received helped her consolidate debts, buy equipment and keep all five of her employees on the payroll.

"I didn't have to lay off anyone," she said.

As part of the recovery act, the SBA -- in reaction to the banking crisis and succeeding credit crunch - increased its guaranty on business loans to 90 percent and eliminated some of the fees it used to charge banks that process the loans.

That made the loans more palatable for bankers, according to Johnny Brown, vice president of Beach First National Bank.

"It was a big advantage as far as the bank being able to help borrowers," he said.

The USDA also increased the amount of money it makes available through its guaranteed loan program for rural businesses. Those loans typically are larger than the SBA's most popular loans, which have a cap of $2 million. Even though the loans are guaranteed, the borrower still must meet each individual bank's underwriting standards, Brown said.

Despite all the changes, demand for the guaranteed business loans "hasn't been as great as we had hoped they would be," Brown said.

The local borrowing is just a small part of the statewide total of 434 loans totaling $479.2 million, according to the federal government. The number of loan approvals ranks 34th among all states and the District of Columbia.

Most of the money that has been awarded locally has been in the form of grants to local governments to hire police, help low-income people find homes and health care and for projects such as water and sewer upgrades and improvements at Myrtle Beach International Airport.

All told, Horry County has been approved for 29 grants totaling $17.5 million and Georgetown County has received approval for five grants totaling $4.5 million

Statewide, there have been 1,033 grant awards totaling $2.8 billion. That puts South Carolina at No. 26 among states and the District of Columbia for the number of grants awarded.

South Carolina also ranks in the bottom half nationally for the number of jobs created or saved by the recovery act. Stimulus spending has created or saved 30,383 jobs nationally, according to the federal government, but just 146 jobs in S.C. - putting the state at No. 41 among all states and the District of Columbia.

Much of the money that has been approved through the recovery act still hasn't made its way to the local agencies that will hire workers and spend the money, which means the full effect of the stimulus bill won't be known for months. So far, it's the small businesses that have taken advantage of guaranteed loans that are the most visible result of the economic recovery plan.

"When I heard [President] Obama had all of these packages for small businesses available, I said, 'Pick me, pick me,'" said Micki Strickland, owner of the Rainbow House Bar & Grill in Myrtle Beach.

Strickland's business received a $337,500 SBA loan in August, and she has used the money to buy new furniture, kitchen equipment, flooring and decor for a bar she describes as looking "dungeon like" before the facelift. Strickland also expanded the lunch and dinner menu and was able to refinance her business debts, paying off a second mortgage and lowering her payments by about $1,000 a month.

"If I hadn't gotten the loan, it would have just been business as usual," Strickland said. "I still would have painted, but I wouldn't have been able to do all of these renovations. "

Even so, Strickland said she is reserving judgment about how much of an impact the improvements will have on her business.

"I can't tell right now because of the way the economy has been," she said, adding that business this past summer was slower than in years past. "I could have been offering free beer and liquor and some customers still would have said they can't come because they don't have the gas money to get here."

Some of this area's biggest tourist attractions also received loans through the recovery act for new equipment and improvements. For example, Alligator Adventure in North Myrtle Beach received a $3.2 million USDA loan and the Wild Water & Wheels water park in Surfside Beach received a $530,000 SBA loan. In Shallotte, N.C., the developer of the Planet Fun recreation complex that opened this summer used a $1.3 million loan to help pay construction and other costs.

Mark Lazarus, owner of Wild Water & Wheels, said traditional loans would give his business a maximum of seven years to pay off the debt while SBA loans allow up to 10 years for repayment of loans for operating capital and up to 25 years for real estate and equipment.

"Bank credit had gotten so tight that they were looking for more collateral" for a loan, Lazarus said. "The banks are more accepting with the SBA guaranteeing 90 percent of the loan."

Lazarus said he used the SBA money for operating expenses and to pay off existing debt and purchase equipment.

"I don't know what we would have done" without the SBA loan, he said, adding that he probably would have had to accept a loan with a shorter repayment schedule. "This was better for us."

While the guaranteed loans have helped spur economic activity for some businesses this summer, the loans have a spotty history along the Grand Strand.

A database of the SBA's 7(a) loans, the agency's most popular program for small businesses, shows there have been 737 loans in Horry and Georgetown counties since the federal agency was created in 1953, with most of those loans generated since the 1970s. There is no repayment data for 160 of those loans, which means the loans still could be active. Of the 577 loans for which repayment data is complete, the SBA has charged off 99 debts. That is a loan default rate of 17.2 percent.

That compares with a national SBA loan default rate that historically has been in the single digits but rose to 11.9 percent in 2008.

Businesses with some of the largest SBA defaults in this area include Food City grocery store in Myrtle Beach, which defaulted on a $580,000 loan in 1985; the Portofino Restaurant in Surfside Beach, which defaulted on a $584,215 loan in 1987; Can Am Gifts in Myrtle Beach, which defaulted on a $385,633 loan in 1994; and Sisco USA Manufacturing in Murrells Inlet, which defaulted on a $449,700 loan in 2006.

All told, the SBA has charged off $10.3 million worth of small-business loans in Horry and Georgetown counties - about 8 percent of the $128.9 million worth of loans that have been made.

There also have been large defaults on loans backed by the USDA. The Butterfly Pavilion, a defunct attraction that featured live butterflies at Broadway at the Beach, had defaulted on about $5 million worth of the agency's rural development loans when it closed in 2002.

The default rate generally mirrors the economy, according to the SBA, which is working to reduce the number of loans that go bad.

"It could not be a surprise to anyone that loan defaults rise when the economy turns difficult, and the economy has been getting more and more difficult for some time now," SBA spokesman Mike Stamler told CNN earlier this year.

The recovery act has been a boon to SBA lending, with $11.3 billion in loans approved since the law was signed Feb. 17. While that trails the nearly $18 billion in loans made the previous fiscal year, the weekly dollar volume of loans since the Recovery Act's passage is up more than 60 percent from the weeks leading up to the stimulus bill's approval.

"These numbers, along with our conversations with lenders and small business owners around the country, show that the Recovery Act hit the mark," SBA Administrator Karen Mills said in a news release this month. "The Recovery Act was critical to unlocking the market and as a result we've helped put billions of dollars of much needed capital in the hands of small business owners during this tough economic time."

Mills said half of the nation's work force either owns or is employed by a small business. For the retail, services and construction industries - the most prevalent in this area - the SBA defines a small business as one with annual receipts of $7 million or less.

"These [loan] dollars played a critical role in driving economic recovery across the country," Mills said.

Although Strickland said it's too early to tell how much of a boost the SBA loan will give her business, the money offers a chance for a better future following a tough economic slump.

"I've gotten a lot of positive response from customers so far," she said.

"The way I look at it, this can do nothing but help my business."