Tim Bubnack, managing partner in Silicon Valley Bank’s San Diego office, says high-tech lending has grown consistently. (photo/alandeckerphoto.com)

Ram International Software is used by structural engineers to design multi-story, steel-framed buildings. Ram’s software has been instrumental in projects ranging from Lindbergh Field’s Terminal 2 to the Gemological Institute, where Palomar Airport Road intersects Interstate 5. Mike Markovitz, the company’s president, says Ram is the design software source for more than 50 percent of new steel framed buildings in the United States.

When Ram wanted a roughly $200,000 line of credit, it chose an SBA-backed line from San Diego National Bank. The transaction was something of a rarity in high-tech lending. “We’ve been in business for 16 years, so we have a profit statement; we have accounts receivable that we used as collateral,” says Markovitz, explaining how the deal was structured.

Marty Spuehler, the vice president who manages San Diego National Bank’s SBA department, says high-tech lending, broadly defined as computer, biotech, telecom and Internet firms, accounts for about 10 percent of the bank’s total SBA lending. This figure includes both 7(a) (real estate and working capital) and 504 (strictly real estate) programs.

Spuehler estimates SDNB’s high-tech SBA volume has doubled since the prototype boom year of 1999, but that may have less to do with market conditions than with SDNB’s role in the marketplace. “We didn’t see a large fallout in 2002 (a low point of the high-tech market), either,” Spuehler says. “Our penetration of the market is growing, so that’s probably most of the growth.”

If there’s a rebound in tech spending this year, Spuehler says companies that upgrade phone and computer systems may be beneficiaries. And that’s a difference between 2004 and 1999, when inventions on the bubble of the so-called New Economy were in vogue. One client, for example, upgrades phone systems for customers whose phone systems are no longer supported by the original vendor. “So their company comes in behind and upgrades the equipment, and refurbishes the system. High-tech today is almost like auto repair,” he explains.

While Silicon Valley Bank does no SBA lending, it is a barometer of sorts for high-tech lending in general. The bank does not break out lending by region, but local high-tech clients include IP3, which develops broadband subscriber management products. The company’s main product, NetAccess, is a billing and authentication gateway that helps service providers (ISPs) to manage access to the Internet.

“In general, I’d say we’ve grown our high-tech lending consistently over the last five years,” says Tim Bubnack, managing partner in the San Diego office.

High-tech lending accounts for about 10 percent of San Diego National Bank’s total SBA lending, says Vice President Marty Spuehler. (photo/alandeckerphoto.com)

The average amount Silicon Valley Bank loans out in a given year has edged up from $1.5 billion in 1999 to $1.8 billion in 2002, to about $1.9 billion by this year’s second quarter.

Bubnack says recent entrepreneurial activity in the life science sector has provided more opportunities for so-called “piggyback” financing, on top of traditional venture capital lending.

“They need ‘bank venture’ lending that we provide to finance more permanent assets like equipment,” says Bubnack. “The collateral is cash from the VC, and as they grow we can lend on their accounts receivable, inventory, and intellectual property.”

While the average amount of loans is increasing, Bubnack says there’s no party atmosphere like 1999. “There still is caution being exercised by large corporations in their level of spending and new IT initiatives, but we hear the backlog is there and the pipeline is full. We’re not seeing the kind of growth we saw in the ‘99 time period, (but) I don’t have any concerns, because we have a lot of businesses that have not replaced their software for up to three years and you just can’t go that long.”

SBA Deputy Administrator Melanie Sabelhaus (see sidebar) says the amount of SBA activity in high-tech is a reflection of the marketplace.

“The market drives what we do,” she says. “If they’re getting a conventional loan, they don’t need us.”

George Chandler, administrator of the local San Diego SBA office, says early stage companies may not qualify for SBA loans because they don’t yet have a product to sell, cash flow, or collateral, although high-tech stars like Qualcomm and Intel have in the past tapped SBA-backed resources.

Another avenue of high-tech financing is Small Business Development Centers, or SBDCs. These use SBA resources to leverage their capital, says Chandler, so that a $10 million SBDC can behave like a $30 million venture firm. SBDC financings for high-tech San Diego companies in fiscal year 1999 totaled 57 deals worth $87.3 million. By fiscal 2002, the number of deals increased to 122, but the dollar amount was reduced to $73 million.

SBDC high-tech financings from Oct., 2003, to July, 2004, are 157 for a total of $89.4 million, beating the FY ‘99 total. Projected FY 2004 financings reach 193, which would push total value to $110 million.