ANNAPOLIS – A present for his 23rd birthday sparked his interest in wines, but it was a federally backed loan that made Mitchell Pressman’s wine shop a reality some 20 years later.
The gift from Pressman’s brother was a book about fine wine (bottle included), and the Chesapeake Wine Co. in downtown Baltimore began to prosper soon after it opened in 1998. And in 2003, his wife, Denise, opened a sister store on the north side of town, just within the city limits — again, with a loan guaranteed by the federal government.
“SBA loans are really good for a sort of bootstrap, start-up business,” Mitchell Pressman said.
The Pressmans are part of a shrinking clientele of Baltimore businesses that are participating in the U.S. Small Business Administration’s largest lending program. It is a trend that in part reflects the changing business community of the Baltimore area.
Serving the most populous city in Maryland, Baltimore’s business community would naturally seem likely to receive more loans under the 7(a) program, the SBA’s flagship lending program.
But a Capital News Service analysis of SBA data since 1995 found that the number of federally backed loans going to Baltimore businesses has declined since 1998.
Until then, an average 119 loans were approved in Baltimore since 1995. Within four years, approvals began to drop in the city.
At around the same time, existing businesses in neighborhoods hugging the city limits began receiving more 7(a) loans than any other area in Maryland, save Baltimore.
But that changed in 2003, when loans in those neighborhoods suddenly shot up to 190. Loan approvals in other parts of the state also increased dramatically, but Baltimore tumbled to fifth in the state, with just 37 loans under the program, compared to the city’s high of 132 in 1997.
The shift in loan approvals from the city to suburban areas coincides with the pattern of population decline that has held in Baltimore since the 1950s and with a greater array of city- and state-backed business loan programs, said O.J. Phillips, assistant director for business development at the SBA’s district office in Baltimore.
The city lost an average 656 people a month between 1995 and 2003, the most recent year available from the U.S. Census.
Furthermore, the city and state have created loan programs intended for businesses in less-affluent areas that might not have qualified for federal loans, Phillips said.
“Our loan criteria sometimes don’t work for all the people all the time,” Phillips said.
And the SBA is allowing more “microloans,” which can be as small as a few hundred dollars and are not part of the 7(a) program, said Allan Stephenson, director of SBA district office.
Changes in the business community since the late ’90s may be involved in the decline in 7(a) loans in Baltimore, said Asher Epstein, managing director of the Dingman Center for Entrepreneurship at the University of Maryland, College Park.
For one, venture capital has been on the rise in Baltimore’s vibrant high-technology sector.
“The venture capital community was making a huge number of investments, so some of that money had to have been shifted,” Epstein said.
Another factor may have been M&T Bank Corp.’s 2002 acquisition of Allfirst Bank, which had been one of the area’s leading lenders of SBA loans, Epstein said.
Last year, 7(a) loan approval across the state appeared to have leveled off after the 2003 boom.
Nationwide, the SBA has begun to place greater emphasis on communities outside large cities, Stephenson said.
Around the turn of the century, the SBA began to relax the 7(a) program’s eligibility requirements, he said. Broadly, SBA loans are given based on a business’s size, use of proceeds and availability of funds from other sources. The agency guarantees the loan, but does not provide the money, which comes from a more traditional lender. It’s the lender that makes the final approval decision.
The agency also reduced its liability for the loan, from guaranteeing 75 percent to now around half, with the remainder underwritten by the bank.
“I think we were more of a lender of last resort in the past,” Stephenson said. “We were picking deals that looked pretty good. Now we’re trying to reach more businesses. We’re giving people more leeway.”