06/21/2010 05:12 am ET | Updated May 26, 2011

A Small-Business Bank with National Impact Has Died

I lost a friend last week. Innovative Bank of Oakland, Calif. is kaput. Just like with other bank failures, the regulators swooped down on the floundering bank after the stock market closed on Friday. It was taken over by the California Department of Financial Institutions and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. Innovative was subsequently merged with Los Angeles, Calif.-based Center Bank.

I am on the east coast and do not normally react much to one more small west coast bank failure during this unstable period for financial institutions. But my small-business clients have lost a bank that has made a major impact on their lives. What is more, my SCORE colleagues nationwide have also lost a bank that has made loans to thousands of their clients as well.

Innovative made small amounts of working capital loans when no other bank would lend marginally qualified small-businesses money. Most of the borrowers were start-ups with no collateral and very little of their own cash to invest. Others were existing companies needing capital to expand or purchase equipment.

Innovative made them loans by using the U. S. Small Business Administration's Community Express loan guarantee program. It is a pilot program that currently makes loans from $5,000 to $25,000. The maximum loan can be increased to $50,000 for businesses located in "Historically Underutilized Business Zones" called HUBZones, and in "low-to-moderate" income areas. Many inner city and rural locations fit the federal definitions for the higher loan amounts.

"Innovative Bank pioneered in providing express loans under the SBA programs nationwide, for as low as $5,000, maximum of $25,000," Charmaine York told me prior to being taken down by by the regulators. She was with Innovative's SBA department. "Innovative Bank has consistently been in the top 10 SBA lenders nationwide based on number of loans funded."

Its successor, Center Bank, has not decided whether or not to continue Innovative's programs, according to an e-mail response that I received from Danny Alfonso today. He signed his missive, "Center Bank (formerly known as Innovative Bank)."

Innovative was one of three community express lenders that did these SBA loans for start-ups and existing companies nationwide. Borrego Springs Bank and Superior Financial Group, both based in Calif., are the other two. They are still in the market.

"It really does not affect us at all and should help us grow volume in the long run," Terry Crispen, senior vice president of Borrego, says about the demise of Innovative. "In terms of us, my biggest issue is letting everyone know we are still actively making loans."

He noted that Community Express lending was not the reason for Innovative's failure. "I think there were other problems with Innovative."

Superior's chief executive officer, Tim Jochner agrees that Community Express was not Innovative's death knell. "They grew their commercial loans too fast and ignored good lending habits," he says. "(It is a) bad idea in a good economy and in this economy it spells disaster."

Superior is the nation's leading Community Express and Patriot Express lender, and made more SBA loans any other bank. SBA recognized Superior for its accomplishments and gave it the agency's lender of the year award during Small Business Week last year.

The Community Express program is designed for streamlined processing and fast approval. Because of the small loan amounts, the lenders base most of their underwriting on credit scoring, a minimal business plan and a multi-page application. Loans are approved within a week or so.

SBA requires applicants to meet with an approved technical assistant provider before the loan is closed. Borrowers continue to receive the mentoring after closing. SCORE, Small Business Centers, and Woman's Business Centers are among the approved nonprofit counselors and mentors.

Borrego's Crispen wants prospective applicants to meet with a technical assistance provider before contacting his bank. "These businesses are really better served by having someone that they can work with to develop a realistic business plan (and) realistic cash flow projections," he says.

You can read more about SBA's express loan programs online at Borrego and Superior provide details about their loans at and, respectively. Contact information for technical assistance providers are also listed.

Jerry Chautin is a volunteer SCORE business counselor, business columnist and SBA's 2006 national "Journalist of the Year" award winner. He is a former entrepreneur, commercial mortgage banker, commercial real estate dealmaker and business lender. You can follow him at